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Records of the National Security Council, Directorate of European and Soviet Affairs (Reagan Administration)
Jack F. Matlock, Jr.'s Union of Soviet Socialist Republics (U.S.S.R.) Subject Files
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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Matlock, Jack F.: Files
Folder Title: Sanctions - USSR (1)
Box: 34
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I
WITHDRAWAL SHEET
Ronald Reagan Library
Collection Name MATLOCK, JACK: FILES
Withdrawer
JET 5/23/2005
File Folder
USSR-SANCTIONS 1/2
FOIA
F06-114/10
YARHI-MILO
Box Number 34
3405
ID Doc Type
Document Description
No of Doc Date Restrictions
Pages
11318 MEMO
PIPES TO NANCE RE MEASURES TO BE
1 12/24/1983 B1
TAKEN AGAINST THE SOVIET UNION
[ 43 43 1
R
1/2/2008 NLRRF06-114/10
11320 MEMO
BAILEY TO NANCE RE MEASURES TO
2 12/23/1981 B1
BE TAKEN AGAINST THE SOVIET UNION
[ 44 45 1
R
1/2/2008 NLRRF06-114/10
11330 PAPER
POLAND: POSSIBLE ACTIONS AGAINST
7
ND
B1
THE USSR
[ 46 52 1
R
1/2/2008
NLRRF06-114/10
11332 PAPER
ECONOMIC SANCTIONS USSR
1
ND
B1
[ 53 53 1
R 1/2/2008 NLRRF06-114/10
Freedom of Information Act - [5 U.S.C. 552(b)]
B-1 National security classified information [(b)(1) of the FOIA]
B-2 Release would disclose internal personnel rules and practices of an agency [(b)(2) of the FOIA]
B-3 Release would violate a Federal statute [(b)(3) of the FOIA]
B-4 Release would disclose trade secrets or confidential or financial information [(b)(4) of the FOIA]
B-6 Release would constitute a clearly unwarranted invasion of personal privacy [(b)(6) of the FOIA]
B-7 Release would disclose information compiled for law enforcement purposes [(b)(7) of the FOIA]
B-8 Release would disclose information concerning the regulation of financial institutions [(b)(8) of the FOIA]
B-9 Release would disclose geological or geophysical information concerning wells [(b)(9) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of gift.
WITHDRAWAL SHEET
Ronald Reagan Library
Collection Name MATLOCK, JACK: FILES
Withdrawer
JET 5/23/2005
File Folder
USSR-SANCTIONS 1/2
FOIA
F06-114/10
YARHI-MILO
Box Number
34
3405
ID Doc Type
Document Description
No of Doc Date Restrictions
Pages
11333 MEMO
KOPP TO BAILEY RE USSR
1 12/23/1981 B1
[ 55 - 55 1
R
1/2/2008
NLRRF06-114/10
11323 MEMO
NAU TO CLARK RE VERSAILLES
1 6/11/1982 B1
SUMMIT: EAST-WEST EXPORT CREDITS
[ 56 - 56 1
R
1/2/2008
NLRRF06-114/10
11325 PAPER
REPORT ON THE EAST-WEST CREDIT
4
ND
B1
ISSUE AT THE VERSAILLES SUMMIT
[ 57 60 1
R
1/2/2008
NLRRF06-114/10
11334 CABLE
190548Z JUN 82
1 6/19/1982 B1
[61 61 1
R
1/2/2008
NLRRF06-114/10
Freedom of Information Act - [5 U.S.C. 552(b)]
B-1 National security classified information [(b)(1) of the FOIA]
B-2 Release would disclose internal personnel rules and practices of an agency [(b)(2) of the FOIA]
B-3 Release would violate a Federal statute [(b)(3) of the FOIA]
B-4 Release would disclose trade secrets or confidential or financial information [(b)(4) of the FOIA]
B-6 Release would constitute a clearly unwarranted invasion of personal privacy [(b)(6) of the FOIA]
B-7 Release would disclose information compiled for law enforcement purposes [(b)(7) of the FOIA]
B-8 Release would disclose information concerning the regulation of financial institutions [(b)(8) of the FOIA]
B-9 Release would disclose geological or geophysical information concerning wells [(b)(9) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of gift.
WITHDRAWAL SHEET
Ronald Reagan Library
Collection Name MATLOCK, JACK: FILES
Withdrawer
JET 5/23/2005
File Folder
USSR-SANCTIONS 1/2
FOIA
F06-114/10
YARHI-MILO
Box Number
34
3405
ID Doc Type
Document Description
No of Doc Date Restrictions
Pages
11327 MEMO
ROBINSON TO CLARK RE RECIPROCAL
1 6/22/1982 B1
U.S. GESTURE FOR POSITIVE
DEVELOPMENT IN POLAND
[63 - 63 ]
R
1/2/2008
NLRRF06-114/10
DOCUMENT PENDING REVIEW IN ACCORDANCE WITH E.O.
11328 MEMO
PIPES TO ROBINSON RE SANCTIONS
1 7/8/1982 B1
[ 66 66 1
R
1/2/2008
NLRRF06-114/10
11335 CABLE
091658Z JUL 82
4 7/9/1982 B1
[ 67 70 1
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1/2/2008
NLRRF06-114/10
11336 CABLE
101032Z JUL 82
3 7/10/1982 B1
[71 - 73 1
R
1/2/2008
NLRRF06-114/10
Freedom of Information Act - [5 U.S.C. 552(b)]
B-1 National security classified information [(b)(1) of the FOIA]
B-2 Release would disclose internal personnel rules and practices of an agency [(b)(2) of the FOIA]
B-3 Release would violate a Federal statute [(b)(3) of the FOIA]
B-4 Release would disclose trade secrets or confidential or financial information [(b)(4) of the FOIA]
B-6 Release would constitute a clearly unwarranted invasion of personal privacy [(b)(6) of the FOIA]
B-7 Release would disclose information compiled for law enforcement purposes [(b)(7) of the FOIA]
B-8 Release would disclose information concerning the regulation of financial institutions [(b)(8) of the FOIA]
B-9 Release would disclose geological or geophysical information concerning wells [(b)(9) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of gift.
WITHDRAWAL SHEET
Ronald Reagan Library
Collection Name MATLOCK, JACK: FILES
Withdrawer
JET
5/23/2005
File Folder
USSR-SANCTIONS 1/2
FOIA
F06-114/10
YARHI-MILO
Box Number
34
3405
ID Doc Type
Document Description
No of Doc Date Restrictions
Pages
11329 CABLE
151931Z JUL 82
1 7/15/1982 B1
[ 74 - 74 1
D
10/25/2007 NLRRF06-114/10
Freedom of Information Act - [5 U.S.C. 552(b)]
B-1 National security classified information [(b)(1) of the FOIA]
B-2 Release would disclose internal personnel rules and practices of an agency [(b)(2) of the FOIA]
B-3 Release would violate a Federal statute [(b)(3) of the FOIA]
B-4 Release would disclose trade secrets or confidential or financial information [(b)(4) of the FOIA]
B-6 Release would constitute a clearly unwarranted invasion of personal privacy [(b)(6) of the FOIA]
B-7 Release would disclose information compiled for law enforcement purposes [(b)(7) of the FOIA]
B-8 Release would disclose information concerning the regulation of financial institutions [(b)(8) of the FOIA]
B-9 Release would disclose geological or geophysical information concerning wells [(b)(9) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of gift.
FOR OFFICIAL USE ONLY
suret
Genrul
sanction
Some Constraints on Western Use of
Economic Sanctions Against the
Soviet Union and Eastern Europe
Draft
February 9, 1981
Prepared by
Allen J. Lenz
Office of East-West Policy
and Planning
International Trade Administration
U.S. Department of Commerce
377-2456
This paper represents the views of the author and should not be
construed as a statement of U.S. Department of Commerce policy.
CONTROLLED BY allen J. Len
DECONTROL February 9, 1982
FOR OFFICIAL USE ONLY CAS 9/26/02
FOR OFFICIAL USE ONLY USE
Executive Summary
Unilateral U.S. efforts to exert economic leverage on the
Soviet Union have been only modestly successful. Attempts at multi-
lateral actions have also been flawed, with failure sometimes attributed
to lack of U.S. consultations with its allies.
This paper argues, however, that there are strong, growing,
and perhaps, inexorable economic forces that make it questionable--
probably unlikely--that significant economic pressure can be
exerted by a unified Western Alliance on the Soviet Union and other
Warsaw Pact members for a sustained period.
A basic constraint on Western use of economic leverage is that
the economic interdependence resulting from the growth of East-West
trade during the 70s makes it economically very painful for certain
Western countries to disrupt their trade with the Warsaw Pact
depayseur
countries. With over 300,000 jobs directly or indirectly related
to exports to CMEA, and with 1.48 percent of its GNP generated by
these exports, the FRG would suffer most from a cut-off of East-West
trade.
Italy and France, with .80 percent of their GNPs coming from
exports to EE/USSR would also be more heavily affected than the U.S.
with a comparable figure of only about .18 percent.
Even these data, however, do not accurately reflect the
relatively greater difficulties a trade clamp down would cause U.S.
Allies, since it would be much easier for the U.S. to adjust to a
loss of its exports that are primarily agricultural products, than
for our allies to adjust to loss of exports by several manufactured
goods sectors which rely very heavily on EE/Soviet markets. Lost
agricultural product export opportunities translate to lower farm
FUR
UPFICIAL
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- 2 -
3
incomes, but not directly to unemployment; lost manufactured goods
exports translate very promotly to lost jobs.
Western Europe and Japan also find trade with CMEA particularly
desirable since, to a large extent, the Eastern countries import
manufactured goods from the West and pay with exports of raw materials
and semi-finished goods that are inputs to, rather than competition
for, Western production.
Western European countries already draw significant energy
supplies from the Soviets--7.8 percent of total 1979 FRG petroleum
imports came from the U.S.S.R.; 6.8 percent for Italy, 5.1 percent
for France. Gas dependencies will grow sharply if the West Siberian
pipeline project is completed. Although the U.S. may be concerned
about these dependencies, our allies will see advantages in buying
still more energy from the U.S.S.R., a country with massive requirements
for Western goods that can be exchanged for energy without incurring
the huge deficits that are typically generated by purchases from
OPEC countries with limited capacities for imports of Western goods.
Outstanding Western loans to CMEA of about $74 billion dollars
also will inhibit Western economic sanctions that might result in
a Eastern inability to service its debts or provoke non-payment as
a retaliatory action.
These factors, together with the difficulties inherent in
developing and maintaining a coordinated Western response by a dozen
or more industrialized Western democracies that would bear differing
costs from economic sanctions, and have differing views on the suit-
ability and effectiveness of economic and trade sanctions, lead to
the conclusion that stiff, unified Western restrictions on trade
with the CMEA countries will be difficult to initiate and implement.
Moreover, even if a political event is serious enough to provoke
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4
an initially united and potentially effective economic response,
it will likely collapse relatively quickly, with Western governments
finding rational arguments to justify avoiding or breaking early
with policies that call for trade restrictions which carry significant
economic costs for them.
Left with an inability to mount concerted trade restrictions,
unilateral U.S. restrictions not only are ineffective but have a
perverse long term effect on future U.S. ability to mount united
Western political and economic policies because they increase the
trade of our allies with the East and deepen their dependency on
EE-Soviet markets and sources of supply.
FOR OFFICIAL USE ONLY
5
TABLE OF CONTENTS
Page No.
Background and Purpose of Paper
1
Economic Interdependency -- A Two Edged Sword
2
Economic Benefits to Western Countries of
Exports to EE/USSR
3
Economic Benefits to Western Countries in
Imports from EE/USSR
6
A Western Interest in Increased Soviet
Energy Production
8
East-West Financial Interdependency
10
Difficulties in Coordination of Western
Trade Restrictions
12
The Perverse Effect of Unilateral U.S.
Restrictive Actions
13
Summary and Conclusions: Why Successful
Multilateral Trade Sanctions are Unlikely
15
**********
APPENDIX A:
Overview of Western Trade with the Soviet Union
and Eastern Europe
APPENDIX B:
Federal Republic of Germany: Trade with EE/USSR
APPENDIX C:
France: Trade with EE/USSR
APPENDIX D:
Italy: Trade with EE/USSR
APPENDIX E:
Japan: Trade with EE/USSR
APPENDIX F:
United Kingdom: Trade with EE/USSR
APPENDIX G:
United States: Trade with EE/USSR
DRAFT
POIN
ONLY
b
SOME CONSTRAINTS ON WESTERN USE OF
ECONOMIC SANCTIONS AGAINST THE
SOVIET UNION AND EASTERN EUROPE
Background and Purpose of Paper
In recent years the United States has frequently attempted
to use trade and economic policies to influence or "leverage"
the political or military behavior of other countries, especially
the Soviet Union. In fact, however, there are now only a very
few items in which the U.S. technology or supply monopoly is so
strong that unilateral U.S. trade actions can significantly
affect a target country. Thus, U.S. efforts to use economic
policy leverage, which have usually been unilaterally imposed
with minimal or no support from other Western countries, have
not been very successful.
The U.S. inability to get a greater degree of cooperation
from its NATO allies in imposing restrictions on the Soviet Union
in reciprocity for the invasion of Afghanistan is sometimes
attributed to U.S. failure to consult with its allies before
taking action. Presumably learning from the Afghanistan experience,
the U.S. has recently consulted with its NATO allies concerning
actions that would be taken in the event of a Soviet intervention
in Poland. These consultations have produced some fairly strong,
though understandably vague warnings concerning the negative effects
on East-West economic relations that would result from a Soviet
invasion.
The thesis of this paper, however, is that there are strong,
growing, and perhaps, inexorable forces that will inevitably make
it very questionable--probably unlikely--that significant economic
pressure can be exerted by a unified Western alliance on the Soviet
Union and other Warsaw Pact members for a sustained period.
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DRAFT
Economic Interdependency--A Two Edged Sword
7
In the early '70s it was theorized that an expansion of
East-West trade and other economic exchanges would create a web
of economic inter-relationships that would give the U.S.S.R. a
vested interest to restrain its political and military actions
because, through misbehavior, it would suffer significant economic
costs by disrupting its economic relations with the West. Un-
fortunately, however, although trade with the U.S.S.R. and its
CMEA partners has grown rapidly during the 1970s, the Western
countries have not yet been able to coordinate their trade policies
in a manner that would be necessary to effectively use economic
leverage to significantly influence Soviet behavior.
A Western inability to mount concerted trade and economic
policies against the Soviet Union and other CMEA countries stems
not only from differing views among the Western allies on the
suitability and effectiveness of economic and trade sanctions,
but from the differing national economic costs that application
of the sanctions would entail.
What is perhaps not understood widely in the U.S. is that
the volume of East-West trade and the economic interdependency
with the Warsaw Pact countries is now such that a disruption of
East-West trade would have major economic costs and disruptive
effects for certain Western countries. U.S. policy makers
should not underrate the importance of these Western economic
problems in shaping the attitudes of our allies and their will-
ingness to follow a U.S. lead in applying economic sanctions
against the Soviet Union and Eastern Europe.
The following sections describe some of the benefits of
East-West trade to our Western European Allies and Japan and,
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8
hence, the opportunity costs they would incur by trade sanctions
aimed at the Soviets and their Eastern European partners.
Amplifying statistical data and other information are provided
in an "Overview" appendix and in a series of appendices that
survey the trade relationships of individual Western countries
with Eastern Europe and the U.S.S.R.
Economic Benefits to Western Countries of Exports to EE/USSR
The benefits of East-West trade to several of our allies in
terms of job creating exports and balance of payments assistance
are significant. The largest benefits undoubtedly go to West
Germany. A study by a West German institute estimated that,
in 1975, some 320,000 jobs, or about 1.2 percent of the labor
force were directly or indirectly dependent on exports to
Eastern Europe and the Soviet Union. Thus, with 7.2 percent
of its total annual exports going to EE/USSR over the 1974-79
period and with 1.48 percent of its 1979 GNP resulting from
exports to these countries, the FRG cannot lightly adopt economic
sanctions against the Eastern countries or implement policies
that would sharply reduce exports that reached $11.3 billion in
1979. Lesser, but important GNP and balance of payment benefits
exist for other Western countries, e.g., Italy, .81 percent of
GNP from exports to EE/USSR; France, .80 percent; U.K., .52
percent.
Even these figures, however, do not convey the dependency
of some industries on Eastern markets; e.g., 20.4 percent of FRG
and 17.8 percent of Italy's iron and steel (SITC 67) product
exports to EE/USSR; over 10 percent of FRG exports of non-electric
machinery (SITC 71) and chemical elements and compounds (SITC 51)
to the Eastern countries, etc.
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DRIVES
The great bulk (87 percent) of West German exports to the
9
East have been intermediate goods (SITC 5 and 6) and manufactured
goods (SITC 7 and 8), outputs of German heavy industry. Eastern
markets for these products tend to be relatively stable and not
tied to Western business cycles, providing the exporters a kind
of "cushion" in periods of Western recessions. Given current economic
conditions in the West, EE/Soviet markets cannot be quickly re-
placed. Indeed, it may not be possible to replace them, even
over the longer term. Thus, without Eastern markets, some basic
West German industries would have to markedly slow production
and lower employment, a sensitive issue in the social welfare
oriented West German society. Similar problems, though to varying
lesser degrees, would result for other Western allies from a
Western trade embargo.
This scenario of economic difficulties contrasts somewhat
with the penalties that sharp trade restrictions would impose on
the United States. With 1.48 percent of West Germany's 1979
GNP coming from exports to EE/USSR, compared with a .23 percent U.S.
figure, a Western trade embargo on the CMEA bloc would appear
to have 6 or 7 times more economic impact on the FRG than on the
United States. But 1979 U.S. exports to the Eastern bloc were
swelled by record grain shipments to the U.S.S.R. Over the
six year 1974-1979 period U.S. exports to EE/USSR averaged
about .18 percent of GNP, about one-twelfth of West Germany's
1.48 percent of 1979 GNP figure. In fact, however, the
economic effects of a disruption of trade with the East on the
F.R.G. and other U.S. allies would probably be even greater
compared to effects on the U.S. than the relative contributions
to GNP from exports would indicate. This conclusion stems from
the fact that the great bulk of U.S. exports to the Eastern
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DRAFT
10
countries has been in agricultural products (74 percent of
1979 total, principally grains), with only 17.2 percent of the total
in intermediate products (SITC 5 and 6) and manufactured goods
(SITC 7 and 8). Even though an embargo on grain shipments to
EE/USSR would create economic costs and political difficulties
in the United States, it would not translate as promptly and
visibly to unemployment and balance of payments problems as
would a comparable reduction in industrial exports.
To begin, because grain is a fungible product traded on
a world market, an air-tight world wide embargo on shipments to
the EE/USSR seems unlikely. Given this fact, a partial embargo
would mean some degree of reallocation of markets, with some of our
grain exporter competitors switching to supply EE/USSR customers
and U.S. suppliers taking over some of our competitors' markets.
Additionally, to the extent that a grain embargo is successful,
grain prices will decline, expanding U.S. exports to other
markets. and tending to equate the demand for U.S. grain to
our supply. In short, the immediate penalty suffered by the
United States from a cut of exports to the CMEA bloc would be
primarily in terms of lower farm incomes, rather than in an
immediate, direct increase in U.S. unemployment.
It is also noteworthy that long term trends seem to
indicate that world demand for grain may increase more rapidly
than supply over the next few years. If so, lost agricultural
markets may be somewhat more domestically tolerable than foregone
markets for industrial goods. Moreover, if U.S. grain exports
are significantly affected by governmental restrictions, the
effects can be mitigated by tested mechanisms, since various
government programs have been employed over the years to
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buttress farm income when supply exceeds demand. These programs
keep farmers out of unemployment lines and are less visible and
a politically less sensitive means of handling underemployment
than various forms of aid to stricken manufacturing industries
that some other Western nations might have to undertake in the
event of a disruption of trade with the East.
Economic Benefits to Western Countries in Imports from EE/USSR
In many respects the EE/Soviet group offers a highly
desirable, if not ideal, trading partner relationship for Japan
and the industrialized democracies of Western Europe. To a
large extent these Eastern countries import from the West manu-
factured goods and some agricultural commodities that are surplus
materials an
in the West and pay for these imports with exports to the West of raw/
semi-finished goods that are used as inputs to Western production.
In general, CMEA exports to the West tend to aid Western pro-
duction rather than to compete with it. While there are, of
course, instances in which Eastern exports compete with domestic
production in Western countries or in third country markets,
this generalization is valid and is particularly true of the
U.S.S.R., with over 76 percent of its 1979 exports to the I.W.
consisting of primary product (SITC 0-4) exports, compared
with Eastern Europe's 43 percent.
Additionally, while the Soviet Union is already the world's
largest producer of many raw materials, and a major supplier to
Western European countries and Japan for many of these items,
our allies tend to see the U.S.S.R., with its vast underdeveloped
natural resources, as an even greater future source of raw
materials, some of which are already in short supply. In
addition to huge deposits of coal, oil and gas, Soviet reserves
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DRAFT
of timber, diamonds, iron ore, copper, platinum, chrome and
other non-ferrous metals are very large, a fact that makes those
Industrialized Western countries that are natural resource
poor more hesitant to impede the long term growth of commercial
relations with the U.S.S.R. than is the United States, with its
lesser dependence on imported raw materials.
This kind of trade pattern--Western exports of manufactured
goods with high value added ratios, in exchange for imports of
raw materials and semi-finished goods--is attractive to Western
European countries and Japan, all of whom need both export
markets and raw material sources to keep their labor forces
and industrial plants employed at high levels.
Each of the Eastern countries has huge
unsatisfied domestic capital investment and consumer needs.
Exports to the West are constrained by supply shortfalls and
domestic needs, while imports from the West are restrained
primarily by hard currency shortages. For the communist coun-
tries, exports are simply a means to buy essential imports and
not a means of utilizing capital and labor that would otherwise
be unemployed. For the forseeable future, they will export only
as a means to finance needed imports, rather than to solve
domestic unemployment problems. Thus, the EE/Soviet group is
a particularly desirable trading partner in that increased
imports from these countries are likely to translate directly
to increased exports to them, an important consideration for
Western countries that do have idle capital and labor resources.
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relype
13
A Western Interest in Increased Soviet Energy Production
U.S. efforts to impede Soviet production of oil and gas
are likely to face strong opposition from our allies. In
addition to the macro-economic argument that it is in Western
interests to increase world energy supplies in order to hold
down prices, our allies have a more direct stake in increasing
Soviet energy production.
In recent years, not only have Soviet oil exports to
Eastern Europe played a key role in keeping East European
economies viable, but about 50 percent of Soviet hard cur-
rency export income has come from oil exports. If this income
source dries up, both Soviet and East European purchases in
the West will have to be sharply reduced, with economic reper-
cussions on Western exports.
Additionally, Soviet oil has become an important input to
Western industry-- 7.8 percent of total 1979 FRG imports of SITC 33
petroleum and petroleum products-- came from the U.S.S.R.;
6.8 percent for Italy, 5.1 percent for France one that West
Europeans may wish to increase, not decrease.
While the U.S. may see a future political-military threat
in increased West European/Japanese energy dependency on the
Soviets, our allies are likely to see it differently on both
political and economic grounds.
From a political standpoint, they see any diversification
as being advantageous, compared to dependency primarily on in-
secure Middle Eastern supplies.
From an economic viewpoint, however, the Soviet Union has
clear and significant advantages as a source of supply, compared
to dealing with the Middle Eastern countries. Energy purchases
from the Middle Eastern countries, which have small populations
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and limited abilities to absorb Western manufactured goods,
14
result in huge surpluses for them--huge deficits for the
Western countries, which must pay for their oil imports by
generating export surpluses on trade with other partners. The
Middle Eastern oil exporting countries deposit their trade
surpluses in Western banks which "recycle" them to various
borrowers, with large amounts going to LDCs, many with ques-
tionable long-term ability to make good on their mounting debts.
As a result of this recycling, Western banks, not the Middle
Eastern oil exporters, bear the loan risks.
By way of contrast, however, the Soviet Union has a vast
territory requiring huge capital imports for its development
and a large population with unsatisfied needs. Its East European
partners are also large potential markets for Western goods. In
both instances, the ability to pay for Western imports has been
the primary factor restraining increased Eastern purchases.
Thus, Western energy purchases from the Soviet Union tend to
increase EE/Soviet ability to buy from the West, and are likely
to translate to increased Eastern purchases in the West, rather
than to Eastern trade surpluses, thus providing the Western
countries the means to pay for their energy and raw material
imports without accruing huge trade deficits. The huge revenue
flows that prospective new exports of natural gas to the West
would generate --as much as $8 billion annually at 1980 prices-
are therefore unlikely to be seen as disadvantageous by the
West European countries.
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51
West Europeans counter American concerns about the increased
dependency that will result from the Siberian gas pipeline to
Western Europe by citing the Soviet need for the hard currency
income the gas sales will produce. However, it is difficult
to escape the conclusion that the Soviets will generate very
significant "reverse leverage" on Western European countries
through the gas export project. Western technology, equipment
and credit will flow eastward for several years during a long
gestation period before a return flow of gas can begin,
heightening the reluctance of those Western countries involved
in the transaction to apply economic leverage against the Soviets
during that period. Subsequently, when gas flows begin Soviet
leverage will be even greater, since they are likely to be
more able and/or willing to suffer interruptions in inflows
of hard currency than the Western countries will be able or
willing to suffer interruptions in gas supplies.
East-West Financial Interdependency
The rapid growth of East-West commerce not only has resulted
in sizable trade interdependencies between East and West, but
substantial financial interdependencies as well.
Eastern countries, having a limited ability to pay, borrowed
heavily--especially in the early to mid-70s--to pay for desired
imports from the West. Western governments and banks, sensing a
profitable new loan market, seeking to aid job-creating export
industries, and assuming that detente had become a permanent
feature of international relations, have been willing--and at
times eager--to provide the CMEA countries with needed funds.
After a decade of trade deficits supported by Western lending,
today the Eastern Europe countries owe Western governmental and private
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16
creditors about $56 billion and the U.S.S.R. another $15.4 billion
for a total of some $71.4 billion, with about 80% of the debt
held by the West European creditors.
One result of Eastern indebtedness to the West is that the
financial health of the CMEA countries has become of no small
importance to European bankers and, one could argue, to the
smooth functioning of the international financial system.
It follows from the above that, in an economic cost-benefit
calculus of multilateral trade sanctions on the CMEA countries,
West European nations will not only be reluctant to forego the
direct benefits of merchandise trade with these countries, but
will also be fearful of any economic measures which might de-
stabilize the delicate East-West financial equilibrium. West
European governments will correctly recognize the significant
possibility that a successful, sustained trade embargo could
force the bloc--and especially the smaller EE countries--into
severe financial difficulties that could result in large-scale,
involuntary reschedulings and/or defaults on Western loans.
This, as has been noted, would not only have consequences for
Western European bankers and official export credit agencies,
but might also prove disruptive to world financial markets,
even though Western governments would undoubtedly take actions
to minimize damage to individual banks and the international
financial system as a whole.
In addition to fearing Western economic sanctions that
would force involuntary defaults, West European governments will
likely also be loathe to take any provocative steps on the trade
or financial fronts which have even a remote probability of
evoking purposeful financial retaliation by the Eastern bloc--
i.e., a flat refusal to pay outstanding loans until trade
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Difficulties in Coordination of Western Trade Restrictions
The United States has been criticized by its Western Allies
for a failure to consult adequately with them before imposing
various trade restrictions on the Soviet Union following its
intervention in Afghanistan, implying that prior consultation
would have resulted in a stronger Western response. Given the
economic factors at work, however, we doubt that "consultations"
would have yielded an effective, coordinated Western response.
Rather, the time required for inter-allied discussions would
more likely have delayed the U.S. response, producing in the
end only ineffective, lowest common denominator multilateral
measures that would have made even more evident than is already
the case existing differences in Western attitudes toward the
use of economic measures.
The Afghanistan episode and other experiences also make
it apparent that whatever trade measures are initially agreed
upon are subject to rapid deterioration once the trigger event
crisis has passed. With more than a dozen major competitors
for export sales to the Eastern bloc, it is likely to be sooner,
rather than later, that one Western country violates, or is
perceived by others to violate, what must inevitably be rather
ill-defined codes of Western behavior. Once the agreement is
seen as having been broached, or appears to be ineffective by
reason of actions of an ally or a party outside the agreement,
the remaining parties to the agreement will rationalize breaking
ranks on grounds that they cannot afford to let competitors
gain the economic benefits of the trade while they suffer
economic losses by sticking with ineffective restrictive actions.
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The Perverse Effect of Unilateral U.S. Restrictive Actions
In several instances the U.S. has persevered in restrictions
on its trade with the Eastern bloc countries, notwithstanding
aggressive pursuit of these markets by European competitors.
Examples include not only the Post-Afghanistan trade restrictions,
but other longstanding unilateral export controls and the Jackson-
Vanik restrictions on MFN and export credits for the Soviet Union
and other communist countries.
These restrictions have imposed substantial economic costs
on the U.S. in terms of foregone exports. But in diverting
these export opportunities to Japan and Western Europe we have
also made those economies more dependent on trade with the com-
munist countries and increased the costs to them of imposing
trade restrictions.
Soviet natural gas exports to the West provide a classic
example of the perverse effects of U.S. restrictive actions.
In the early 70's, giant U.S.-Soviet projects were discussed
under which U.S. exports of equipment and technology would
have made possible development of Siberian gas fields and
shipment of large quantities of liquified natural gas to the
United States. The projects, which would have provided sig-
nificant hard currency income to the Soviets, were intermit-
tently discussed during most of the 70's, but never progressed
for a variety of reasons.
Given recent gas discoveries in the United States, LNG
imports from the U.S.S.R. may well not have been the best
economic alternative for supplying U.S. gas needs. Probably
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more important, however, in a U.S. hesitancy to enter into
these transactions with the Soviets were basic U.S. concerns
that large gas purchases from the Soviets would strengthen
their economy and, secondly, worries about developing a U.S.
dependency on Soviet gas.
Now, however, as an alternative to the U.S. transaction
the Soviets are proposing construction of a massive gas trans-
mission line from Siberia to Western Europe. The end result
will be huge gas sales to Western Europe and not only an in-
creased West European dependency on Soviet energy that will be
relatively much greater than the U.S. dependency would have
been, but also generation of very large amounts of hard cur-
rency income for the Soviets that they will use largely to
make purchases from those countries importing Soviet gas. These
purchases will further increase the economic stake of West
European countries in trade with the U.S.S.R. and decrease
their future willingness to follow a U.S. lead in imposing
trade sanctions.
In retrospect then, it might have been preferable to
accept a minor U.S. dependency on Soviet gas and the economic
benefits of increased sales to the U.S.S.R., than to be faced
with significantly increased European energy and trade dependence
that will result from the alternative transaction. Additionally,
a U.S.-Soviet transaction would have given the U.S. leverage
potential inherent in an ability to unilaterally terminate
equipment and spare parts sales to the Soviets.
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Summary and Conclusions: Why Successful Multilateral Trade
Sanctions are Unlikely
The growth of East-West economic relationships has created
significant "interdependencies"; i.e., both sides gain from the
relationship and have become, to some degree, dependent on one
another. Thus both sides will "lose" from an interruption or
termination of their economic relationship.
In a situation where both sides will lose by stopping their
economic exchanges, both may choose to continue the relationships,
despite political differences. Alternatively, the side that
feels it has the least to lose per an economic calculus may
break the relationship, hoping to penalize the opponent more
than itself by the action. Or, the stronger willed party may
break the relationship, disregarding the results of the economic
calculus and making the decision on other grounds.
Most U.S. policy makers see East-West trade as benefiting
the Warsaw Pact countries more than the West and are thus ready
to use trade sanctions as a foreign policy tool in dealing with
the U.S.S.R. They tend to assume that, in the event of Soviet
misbehavior, the U.S. should be able to muster a united Western
front in invoking economic sanctions against the U.S.S.R.
However, given their much larger benefits from and de-
pendencies on East-West trade, some U.S. allies are generally
unimpressed by arguments that the East benefits more from the
trade than does the West. They see the trade as "mutually
beneficial" and tend to focus on the short-term economic benefits
to them. These benefits are both more immediate and more
tangible than the benefits that may accrue to the West from:
restrictions on the trade, which have never been clearly defined
in the context of a consistent, long range strategy for dealing
with EE/USSR.
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The problemsin achieving a united Western response are well
stated by Walter Laquer of the Georgetown Center for Strategic and
International Studies:
"In democratic societies a national consensus is usually
achieved for any length of time only in war or when
facing a threat of similar magnitude. A war constitutes
a clear and visible danger, whereas in an economic,
social, or political crisis, there is hardly ever the
same overriding sense of urgency, the same dramatic
feeling of the need to act together for the common
good or for survival. Creeping crises produce no
great tensions and generate no great passions; there
is always the hope that the threat may suddenly go
away. There is nothing more difficult than mobilizing
a democratic society for an all-out effort in the
absence of a demonstrative effect comparable to a
war. It has been said that nothing clears the mind
of a person as wonderfully as the certainty that he
will be hanged within a day or a week. But if a
person or a collective faces a fate of this kind
only in a perspective of a year or a decade, and if,
furthermore, the catastrophe is not absolutely certain
but only highly probable, the result is not concentra-
tion of mind, but on the contrary, confusion."
The problems of achieving consensus in a group of democracies
are doubtless even greater than those of gaining a consensus in a
single democracy.
Now will it be easy for the U.S. to pressure unwilling allies
into a united stand on comprehensive sanctions. Italy and the FRG
both have trade volumes with the EE/USSR group ten percent larger
than their trade with the U.S.; French exports to the group are
not far behind exports to the U.S.; and a long standing tradition
of trade between Eastern and Western Europe will resist significant
disruptions.
Georgetown Magazine, Center for Strategic and International
Studies, July/August 1980, p. 14.
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The willingness of Western countries to unite in imposing
trade sanctions on the Soviet Union and other Warsaw Pact countries
will, of course, depend on the Soviet actions which provoke the
sanctions. Circumstances may make possible some limited expansion
of existing restrictions--e. a tightening of COCOM controls,
although even this limited action is likely to encounter strong
resistance from the countries whose export markets would be affected.
This paper, however, argues that even the most provocative Soviet
action short of war against the West--e.g., an invasion of Poland
that met stiff Polish resistance and resulted in widespread des-
truction and a large number of casualties--would be unlikely to
produce a strong, united, sustained Western response in the form
of trade sanctions with a broad impact on East-West trade. We
argue that, while the initial response might appear significant
and unified, it would probably deteriorate rather quickly after
a relatively brief "wake".
This pessimistic--perhaps cynical--assessment is based on
an analysis of various economic factors and a conclusion that
economic costs and benefits will be important forces in shaping
trade and other East-West policies.
These factors can be summarized as follows:
1. There are significant economic benefits to Western
countries in exporting to EE/USSR. These benefits, and hence
the costs of trade restrictions, are relatively much greater
for some other Western countries than for the United States.
2. There are significant economic benefits to Western
countries in imports from EE/USSR, which consist largely of
primary products and raw and semi-finished materials that serve
as inputs to Western industry, rather than competing directly
with it.
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3. West European countries have an interest in increasing
Soviet energy production, not only to increase supplies available
to them, but to develop a source of supply that itself has large
import needs, so that Western manufactured goods can be exchanged
for Soviet energy without Western trade deficits.
4. Existing financial East-West interdependencies, principally
the more than $71.4 billion Eastern debt to the West will give pause to
Western actions that would make it impossible for the Eastern
countries to meet their debt obligations or motivate them to
refuse to pay in response to Western trade restrictions.
Thus, given the lack of a clearly defined role of Western
trade policy in East-West relations, and the significant economic
costs of trade restrictions to some Western countries we conclude
that:
1. A nation's willingness to apply economic sanctions
will be inversely related to the cost of applying such sanctions.
A high economic cost of trade restriction measures to a nation
will tend to make it create rationales and attitudes that argue
against trade restrictions on non-economic grounds and subtly,
but significantly, may affect other policies and attitudes as
well.
2. Stiff, unified economic sanctions will be difficult
to implement. However, even if a political event is serious
enough to provoke an initially united and potentially effective
economic response, that response will collapse relatively quickly,
with Western governments finding rational arguments to avoid or
break with policies that call for trade restrictions which carry
significant economic costs for them.
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3. Because they deepen the dependency of other Western
countries on EE-Soviet markets and sources of supply, unilateral
U.S. restrictions have a perverse long term effect on a U.S.
ability to mount united Western political and economic policies.
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Appendix A
OVERVIEW OF WESTERN TRADE WITH THE SOVIET UNION AND EASTERN EUROPE
Trade Volumes and Shares
Two-way trade between 17 Industrialized Western countries¹/
and the European CMEA countries grew from a modest $13 billion
in 1970 to over 74 billion in 1979.
As shown in Table 1, just over half ($20.7 billion, 53.4%)
of 1979 I.W. exports of $38.8 billion went to East European destina-
tions; just under half ($18.1 billion, 46.6%) went to the Soviet Union.
Poland was the I.W.'s largest East European export market ($5.7
billion, 14.7 percent of total I.W. exports to CMEA), followed by
the GDR ($4.9 billion, 7.4 percent of total). These patterns do
not differ markedly from those of 1970, except that I.W. exports
to the U.S.S.R. have grown relatively more rapidly than to Eastern
Europe, with Eastern Europe's share declining from nearly 63 percent
in 1970 to 53 percent in 1979.
At $22.6 billion, European Community exports to the CMEA
group were over 58 percent of the I.W. total (see tables 2 and 3).
The largest individual country exporter to the CMEA group was the
FRG ($11.3 billion, 29 percent of total), with the United States
second ($5.7 billion, 14.6 percent of total) based on unusually
large 1979 grain shipments to the U.S.S.R., and France third
ranking ($4 billion, 10.4 percent of total), while Japan ranked a
relatively weak fourth ($3.3 billion, 8.4 percent) with a
large Soviet market share (13.6 percent of the I.W. total) offset
by a much poorer showing in exporting to Eastern Europe (3.9 percent
of total).
1 / For purposesof this paper, the 17 Industrialized Western countries
are: Belgium-Luxembourg, Denmark, the Federal Republic of Germany, France
Ireland, Italy, Netherlands, United Kingdom, Austria, Canada, Finland,
Japan, Norway, Sweden, Switzerland, and the United States.
2/ The European CMEA countries are the USSR, and six East European
countries, the German Democratic Republic, Poland, Hungary, Czecho-
slovakia, and Romania.
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I.W. imports from the Soviet/EE group totalled $35.8 billion
in 1979, up from only $7.3 billion in 1970. Just under half ($17.3
billion, 48.3% of total) originated in Eastern Europe and just over
half ($18.5 billion, 51.7%) came from the U.S.S.R. As shown in Table 1,
Poland was the largest 1979 East European supplier to the I.W.
($4.8 billion, 13.3% of total), followed by the GDR ($4.0 billion, 11.2%
of total).
The European Community countries took 75% of East European exports
to the I.W. and 61% of Soviet exports to the I.W. (table 2). The
FRG was the CMEA groups largest market, taking 29.3% of their exports
to the I.W., with Italy taking 10.4% and France 9.2%. The United
States took $1.4 billion of Soviet/EE exports, 4.0 percent of the I.W.
total.1/ Over the 6 year 1974-79 period, the 17 I.W. accumulated a
surplus of $ billion on trade with the European CMA countries.
In rank order the balances of the Western countries covered by this
study for the 1974-79 period are:
1974-79 Balance on EE/USSR Trade
(Billions of dollars)
United States
Federal Republic of Germany
$13.6
Japan
5.9
France
3.6
Italy
(2.1)
United Kingdom
(3.6)
Composition of I.W. Trade with USSR-EE
The composition of I.W. exports to the CMEA group is summarized in
table 5
About 40 percent ($15.9 billion) of all 1979 I.W. exports,
were intermediate goods (SITC 5-6), while machinery and transport equipment
(SITC 7) alone accounted for $11.9 billion, nearly 1/3 of all shipments.
The composition of I.W. imports from the CMEA group is also
provided in table 5. Over one-fourth ($4.8 billion, 27.9% of total)
of Eastern Europe's exports to the West were manufactured goods (SITC 7-8)
and a similar amount was intermediate goods (SITC 5-6). By contrast, $11.4
1/ Bilateral trade volume and shares data for 1970 and 1979 are provided
in tables 3 and 4. 2/ The composition of individual CMEA country exports
and imports is detailed in tables 6 and 7.
11 mg JOH WISHOU
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billion of Soviet exports to the West, 61.5 percent of the total, was
in the mineral fuels category (SITC 3) principally crude oil,
refined products, natural gas, etc.), with other raw materials
making up the bulk of the remainder. Intermediate goods totalled
only $4.4 billion, 14.9 percent of total, and manufactured goods only
$889 million, less than 5 percent of the total.
Relative Importance of Soviet-EE Trade to Selected Western Countries
Table 8 shows U.S. and selected Western country trade with the
Soviet/EE group as a percentage of each country's trade with the world.
Over the 1974-1979 period, European Community exports to the Eastern
group averaged 4.4 percent of total EC exports; EC imports from the
group averaged 3.8 percent of annual total EC imports. For the
FRG, however, exports to the CMEA group averaged 7.0 percent of its
total. Similar average exports as a percent of total exports for other
Western countries were France 4.3 percent; Italy, 4.8 percent; U.K.
2.5 percent; Japan, 2.6 percent and the United States 2.6 percent.
Since virtually all of the Industrialized Western democracies
have balance of payments and unemployment problems, all are increasingly
export oriented and the above measures of the portion of total exports
absorbed by the Soviet/EE group are useful indicators of the importance
of these Eastern markets to the Western countries. However, because the
importance of trade and exports varies widely between individual
Western countries, expressing each Western country's exports to the
Soviet/EE bloc as a portion of its GNP provides a far more valid and
revealing indicator of the importance of these communist country markets
to individual Western countries.
Table 9 presents the percentage of their Gross National Products
generated by the exports of selected Western countries to the Soviet
Union and Eastern Europe.1/ Using this measure, the FRG is by far the
1/ The standard formulation for calculation of GNP is GNP = Consumption
(C) (M). plus Investment (I) plus Government OFFICIAL (G) plus USE Exports UNLY (X) minus Imports
you
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most dependent on the Eastern countries,
with 1979 exports to the Soviet Union and Eastern Europe equivalent
to 1.48 percent of that year's GNP. Italy, with .81 percent of its
1979 GNP stemming from exports to the Warsaw Pact countries ranks
second by this measure, followed by France (.70 percent) and the U.K.
(.52 percent). Japan's exports contribute only .31 percent of its
GNP, with more than three-fourths of that total coming from exports
to the U.S.S.R.
At .23 percent of GNP, U.S. exports to the Soviet/EE group
in 1979 were less than one-sixth as important a contributor to
GNP as those of the FRG. Additionally, 1979 U.S. exports to the
Eastern countries were abnormally high, based on record grain shipments
to the U.S.S.R. More typically, U.S. exports to the group would average
.17 to .19 percent of U.S. GNP.
These measures make it evident that all of our major allies,
especially the FRG, Italy, France and the U.K. have relatively
much more than the United States to lose in an economic sense, from
a cut-off or sharp reduction in Western trade with the CMEA countries.
Even these, measures, however, do not make evident some other
important dependencies that are revealed in a sector by sector analysis
of each Western country's import and export patterns in trade with
the Soviet/EE bloc.
Table 10 displays Western country exports of certain commodities the
U.S.S.R./EE as a percent of total 1974-79 exports to the world.
It
shows that, while total exports of all commodities by the FRG
to the Soviet/EE group were 7.0 percent of total FRG exports to the
world, the Soviet EE group absorbed a much higher percentage of FRG
exports of certain commodities. For example, they took 20.4 percent
of the FRG's exports of iron and steel (SITC 67) and over 10 percent of it:
exports of both chemical elements and compounds (SITC 51) and non-
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29
electric machinery (SITC 71).
France and Italy also have some sectors with important dependencies
on EE/USSR export markets.
The Soviet Union has also become important to EC countries as an
energy supplier. As indicated by table 10, in 1979 EC countries took
6.26 percent of their total petroleum (SITC 33) imports from the U.S.S.R.,
with the FRG drawing 7.82 percent of its oil from the Soviets.
About 15 percent of the FRG's natural gas is now supplied by the
Soviet Union, with Italy taking 46.9 percent of its 1979 imports from the
Soviets. If the proposed pipeline from Siberia is completed, the late
1980s will see the FRG dependent on the Soviet Union for about 25% of its
natural gas, the existing Italian dependency will increase, and new
dependencies for France, Belgium and other West European countries
will be created.
The volume of trade by selected Western countries with the
United States and the EE/USSR group is compared in Table 12. Japanese
and British trading volumes with the United States dwarf their trade
with the EE/USSR group. However, the FRG's trade in 1979 with these
countries was larger than its trade with the United States. FRG exports
to the East at $11.3 billion were only slightly higher than $11
billion that went to the United States. At $10.5 billion, however,
FRG imports from the Eastern countries were $2.0 billion higher than the
total from the United States. The Eastern countries are almost as
important as the United States as an export market for France. French
exports in 1979 to the CMEA countries reached $4.9 billion, compared
with a $4.8 billion to the United States. At $5.6 billion, French
imports from the United States were significantly larger than the
$3.3 billion from EE/USSR.
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Italian imports of $7.6 billion from the EE/USSR group far
surpassed the $4.4 billion from the United States, but the United
States was a significantly larger market for Italian exports than
EE/USSR.
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DECONTER February 9,1982
31
Table 1
CMEA Destination and Origins in Trade
with the I.W., 1979 and 1970
(Millions of Dollars)
I.W. Exports
I.W. Imports
CMEA
Destination/
1979
1970
1979
1970
Origin:
$
%
$
do
$
olo
$
olo
Bulgaria
1136
2.9
301
4.5
708
2.0
215
3.4
Czech
2592
6.7
737
11.0
2547
7.1
674
10.7
GDR
4852
12.5
1062
15.9
4008
11.2
927
14.7
Hungary
2873
7.4
584
8.8
2385
6.7
507
8.1
Poland
5726
14.7
827
12.4
4759
13.3
996
15.8
Romania
3545
9.1
672
10.1
2914
8.1
514
8.2
EE total
20724
53.4
4183
62.7
17322
48.4
3883
61.0
USSR
18114
46.6
2491
37.3
18503
51.6
2453
39.0
USSR/EE
38838
100.0
6674 100.0
35825
100.0
6286
100.0
Table 2
1979 I.W. Market Shares in Trade with USSR/EE
($MIllions)
1. EXPORTS
1. W. IMPORTS
Country
EE
USSR
EE/USSR
EE
USSR
EE+USSR
$
of
$
&
$
8
$
8
$
7
$
8
Bel-Lux
590.5
2.8
467.5
2.6
1058.0
2.7
467.2
2.7
593.0
3.2
1060.2
3.0
Denmark
259.7
1.3
94.5
0.5
354,2
0.9
332.6
1.9
420.0
2.3
752.6
2.1
FRG
7644.4
36.9
3618.6
20.0
11263.0
29.0
6596.6
38.1
3883.1
21.0
10479.7
29.3
France
2024.2
9.8
2007.5
11.1
4031.7
10.4
1502.1
8.7
1790.4
9.7
3292.5
9.2
Ireland
25.7
0.0
45.9
0.3
71.6
0.2
106.1
0.6
86.6
0.5
192.7
0.5
Italy
1417.7
6.8
1219.9
6.7
2637.6
6.8
1807.7
10.4
1902.0
10.3
3709.7
10.4
Netherlands
841.0
4.1
304.3
1.7
1145.3
2.9
966.4
5.6
845.9
4.6
1812.3
5.1
UK
1168.4
5.6
891.1
4.9
2059.5
5.3
1206.4
6.9
1760.0
9.5
2966.4
8.3
EC Subtotal
13971.8
(67.4)
8649.3
(47.7)
22621.1
(58.2)
12984.9
(75.0)
11281.0
(61.0)
24265.9
(67.7)
Austria
1486.3
7.2
513.1
2.8
1999.4
5.1
1008.1
5.8
759.8
4.1
1767.9
4.9
Canada
337.5
1.6
653.9
3.6
991.4
2.6
202.5
1.2
49.4
0.3
251.9
0.7
Finland
270.1
1.3
1540.9
8.5
1811.0
4.7
410.2
2.4
2206.5
11.9
2616.7
7.3
Japan
803.3
3.9
2461.5
13.6
3264.8
8.4
323.1
1.9
1869.1
10.1
2192.2
6.1
Norway
158.6
0.8
87.5
0.5
246.1
6.3
250.8
1.4
146.4
0.8
397.2
1.1
Sweden
837.3
4.0
339.3
1.9
1176.6
3.0
709.5
4.1
1059.9
5.7
1769.4
4.9
Switzerland
803.4
3.9
265.6
1.5
1069.0
2.8
353.8
2.0
780.1
9.2
1133.9
3.2
U. S.
2056.2
10.0
3604.1
19.9
5660.3
14.6
1078.9
6.2
351.1
1.9
1430.0
4.0
Total
20724.4
100.0
18114.3 100.0
38838.7
100.0
17321.8
100.0
18503.5
100.0
35825.3
100.0
TABLE 3
Shares of I.W. Trade With CHEA, 1970 and 1979, Exports
(Millions of $)
% of EE
? of
EE 1
?. of
1979
I.W. Exports
Bulgaria
Czech.
GDR
Hungary
Poland
Romania
EE
Total
U.S.S.R.
USSR
USSR
EE-USSR
Bel-Lux
43.8
74.5
95.9
76.2
174.9
125.2
590.5
2.8
467.5
2.6
1058.0
2.7
Denmark
6.9
24.8
69.9
39.7
97.6
20.8
259.7
1.3
94.5
in
354.2
0.9
FRG
395.3
1086.9
2570.3
1168.0
1348.4
1075.5
7644.4
36.9
3618.6
20.0
11263.0
29.0
France
141.7
151.4
361.7
210.4
605.7
553.3
2024.2
9.8
2007.5
11.1
4031.7
10.4
Ireland
5.9
1.8
2.9
3.7
7.3
4.1
25.7
0.0
45.9
.3
71.6
0.2
Italy
135.8
154.3
160.4
248.8
385.7
332.7
1417.7
6.8
1219.9
6.7
2637.6
6.8
Netherlands
36.0
102.3
206.8
147.9
224.9
123.1
841.0
4.1
304.3
1.7
1145.3
2.9
United Kingdom
58.1
156.9
123.7
129.5
550.5
149.7
1168.4
5.6
891.1
4.9
2059.5
5.3
EC Subtotal
823.5
1752.9
3591.6
2024.2
3395.2
2384.4
13971.8
(67.4)
8649.3
(47.7)
22621.1
(58.2)
Austria
95.1
216.8
169.3
353.9
435.9
215.3
1486.3
7.2
512.1
2.8
1999.4
5.1
Canada
8.0
30.9
30.7
11.9
228.4
27.6
337.5
1.6
653.9
3.6
991.4
2.6
Finland
16.4
31.1
91.7
58.1
50.1
22.7
270.1
1.3
1540.9
8.5
1811.6
4.7
Japan
45.0
38.6
268.4
49.1
221.1
181.1
803.3
3.9
2461.5
13.6
3264.8
8.4
Norway
5.2
19.2
26.3
11.3
89.0
7.6
158.6
0.8
87.5
.5
246.1
6.3
Sweden
25.9
96.3
173.9
114.9
327.2
99.1
837.3
4.0
339.3
1.9
1176.6
3.0
Switzerland
60.5
124.9
146.1
171.7
193.0
107.2
803.4
3.9
265.6
1.5
1069.0
2.8
United States
56.2
281.1
354.5
77.6
786.3
500.5
2056.2
10.0
3604.1
19.9
5660.3
14.6
Total
1136.0
2591.8
4852.5
2872.8
5726.0
3545.3
20724.4
100.0
18114.3
100.0
38838.7
100.0
8 Total
2.9%
6.7%
12.5%
7.48
14.7%
9.18
53.4%
16.68
1970
Bel-Lux
9.8
21.3
15.9
19.4
26.4
23.9
116.7
2.8
53.9
2.2
170.6
2.6
Denmark
2.5
14.6
16.9
11.2
37.7
5.0
87.9
2.1
26.5
1.1
114.4
1.7
FRG
65.6
289.9
660.0
142.5
179.7
197.2
1534.0
36.7
422.4
17.0
1956.4
29.3
France
47.8
57.0
59.6
46.6
81.2
82.0
374.2
8.9
273.2
11.0
647.4
9.7
Ireland
-
.8
.1
1.7
5.1
.1
7.8
0.2
-
-
7.8
0.0
Italy
49.5
74.7
26.5
92.1
72.1
78.9
393.8
9.4
307.9
12.4
701.7
10.5
Netherland
7.5
32.3
39.1
35.5
28.8
21.7
164.9
3.9
45.5
1.8
210.4
3.2
United Kingdom
26.0
47.9
40.2
44.8
135.1
68.1
362.1
8.7
233.7
9.4
595.8
8.9
EC Subtotal
208.8
536.7
858.3
393.8
566.2
447.0
3010.8
(72.0)
1363.2
(54.7)
4374.0
(65.5)
Austria
26.6
61.8
26.2
80.4
44.6
46.8
286.4
6.8
82.1
3.3
368.5
5.5
Canada
3.3
6.7
.4
6.7
14.5
3.4
35.0
0.8
97.7
3.9
132.7
2.0
Finland
3.9
13.3
18.9
10.0
27.5
5.3
78.9
1.9
282.5
11.3
361.4
5.4
Japan
20.8
10 1
14.7
11.7
22.4
26.2
105.9
2.5
341.0
13.7
446.9
6.7
Norway
1.0
7.0
7.4
5.3
14.6
.5
35.8
0.9
24.8
1.0
60.6
0.9
Sweden
8.9
36.0
77.5
24.2
39.2
20.5
206.3
4.9
131.4
5.3
337.7
5.1
Switzerland
12.4
43.3
25.7
24.2
28.0
26.3
159.9
3.8
49.9
2.0
209.8
3.1
United States
15.3
21.9
32.5
28.1
69.8
66.3
233.9
5.6
118.2
1.7
352.1
5.3
Total
300.8
736.6
1061.6
584.4
827.0
672.3
4182.8
100.0
2490.8
100.0
6673.6
100.0
% Total
4.5%
11.0%
15.9%
8.8%
12.4%
10.1%
62.7%
37.38
TABLE 4
Shares of I.W. Trade With СМЕЛ, 1970 and 1979, Imports
(Millions of $)
% of EE
7. of
EE 1
% of
1979
I.W. Imports
Bulgaria
Czech.
GDR
llungary
Poland
Romania
EE
Total
U.S.S.R.
USSR
USSR
EE+USSR
Bel-Lux
25.2
66.5
133.4
36.2
157.3
48.6
467.2
2.7
593.0
3.2
1060.2
3.0
Denmark
8.0
55.5
70.9
41.8
143.2
13.2
332.6
1.9
420.0
2.3
752.6
2.1
FRG
194.6
876.5
2502.6
923.0
1206.0
893.9
6596.6
38.1
3883.1
21.0
10479.7
29.3
France
68.8
167.1
216.0
153.6
551.9
344.7
1502.1
8.7
1790.4
9.7
3292.5
9.2
Ireland
1.3
15.9
13.7
4.8
67.0
3.4
106.1
0.6
86.6
0.5
192.7
0.5
Italy
210.6
233.6
161.9
339.4
493.0
369.2
1807.7
10.4
1902.0
10.3
3709.7
10.1
Netherlands
27.0
145.5
134.6
114.9
154.5
390.0
966.4
5.6
845.9
1.6
1812.3
5.1
United Kingdom
25.7
205.4
237.6
110.1
487.4
140.2
1206.4
6.9
1760.0
9.5
2966.4
R.3
EC Subtotal
561.1
1765.9
3470.7
1723.6
3260.3
2203.4
12984.9
(75.0)
11281.0
(61.0)
24265.9
(67.7)
Austria
40.2
321.5
118.5
240.3
202.4
85.2
1008.1
5.8
759.8
1.1
1767.9
4.9
Canada
5.4
57.7
8.3
26.7
70.7
33.7
202.5
1.2
19.4
.3
251.9
0.7
Finland
9.8
56.2
64.2
48.6
217.0
14.4
410.2
2.4
2206.5
11.9
2616.7
7.3
Japan
24.5
59.9
27.8
23.2
72.9
114.8
323.1
1.9
1869.1
10.1
2192.2
6.1
Norway
1.9
36.4
43.1
19.7
143.5
6.2
250.8
1.4
146.1
.8
397.2
1.1
Sweden
14.2
93.5
201.7
90.4
243.5
66.2
709.5
4.1
1059.9
5.7
1769.4
4.9
Switzerland
13.6
99.9
34.0
90.8
83.0
32.5
353.8
2.0
780.1
4.2
1133.9
3.2
United States
37.0
56.5
39.8
121.9
466.1
357.6
1078.9
6.2
351.1
1.9
1430.0
4.0
Total
707.7
2547.5
4008.1
2385.1
4759.4
2914.0
17321.8
100.0
18503.5
100.0
35825.3
100.0
% Total
2.0%
7.1%
11.2%
6.7%
13.3%
8.1%
48.3%
51.7%
1970
Bel-Lux
5.0
19.4
32.3
10.4
24.0
8.0
99.1
2.6
77.1
3.1
176.2
2.8
Denmark
2.1
24.8
21.9
13.6
44.8
4.5
111.7
2.9
35.6
1.5
147.3
2.3
FRG
64.7
198.7
545.9
133.9
203.3
158.5
1305.0
34.0
341.6
13.9
1646.6
26.2
France
18.9
39.7
42.3
27.1
68.0
53.3
249.3
6.5
203.5
8.3
452.8
7.2
Ireland
.7
3.3
1.6
.7
18.2
1.9
26.4
0.7
3.8
.2
30.2
0.5
Italy
54.3
75.4
35.3
121.8
120.8
135.0
542.6
14.2
281.5
11.5
824.1
13.1
Netherland
9.0
34.8
45.6
23.4
28.7
11.4
155.9
4.1
58.1
2.4
214.0
3.4
United Kingdom
19.6
52.4
38.0
25.4
151.3
55.6
342.3
9.0
266.1
10.8
608.4
9.7
EC Subtotal
174.5
448.5
762.9
356.2
659.0
431.4
2832.5
(73.9)
1267.3
(51.7)
4099.8
(65.2)
Austria
11.0
67.4
27.8
59.6
57.9
28.8
257.5
6.6
79.5
3.2
332.0
5.3
Canada
1.0
26.3
3.5
8.8
11.3
4.9
56.0
1.5
8.7
.1
64.7
1.0
Finland
5.6
12.8
16.9
11.1
39.3
8.3
94.0
2.5
331.3
13.5
425.3
6.8
Japan
9.3
15.2
38.7
4.2
39.6
1.3
111.3
2.9
481.1
19.6
592.4
9.4
Norway
2.8
14.9
8.0
5.9
17.8
2.1
51.5
1.3
30.8
1.3
82.3
1.3
Sweden
3.8
31.9
46.8
23.0
57.5
11.9
174.9
4.6
155.7
6.3
330.6
5.3
Switzerland
4.1
33.0
13.6
32.2
15.8
8.8
107.5
2.8
26.8
1.1
134.3
2.1
United States
2.4
23.9
9.4
6.2
97.9
13.4
153.2
1.0
72.3
2.9
225.5
1.6
Total
214.7
674.0
927.5
507.2
996.3
513.8
3833.5
100.0
2453.4
100.0
6286.9
100.0
80
Total
3.4%
10.7%
14.7%
8.1%
15.8%
8.2%
61.03
39.02
Table 5
Composition of I.W. Trade with
European СМЕЛ 1970 and 1979
(Millions of U.S. dollars)
I.W. Exports
1970
1979
SITC
Descriptor
EE
USSR
EE
USSR
($)
(8)
($)
(8)
($)
(8)
($)
(8)
0
Food & Live Animals
394
9.4
143
5.7
2539
12.2
3257
18.0
1
Beverages & Tobacco
25
0.6
5
0.2
143
0.6
31
0.2
2
Crude Materials
339
8.1
108
4.3
1346
6.5
877
4.8
3
Mineral Fuels & Lubricants
103
2.5
5
0.2
685
3.3
100
0.6
1
Animal & Veg. Oils & Fats
38
0.9
--------
157
0.8
95
0.5
5
Chemicals
572
13.7
255
10.2
3426
16.5
1927
10.6
6
MEgrs. by Chief Material
1153
27.6
713
28.6
5105
24.6
5411
29.9
7
Machinery & Transport Equip.
1349
32.3
1028
41.3
6282
30.3
5654
31.2
8
Misc. Manufactures
176
4.2
217
8.7
838
4.0
650
3.6
9
Items & Transactions n.e.s.
32
0.8
19
0.8
204
1.0
112
0.6
Total
4183
100.0
2490
100.0
20725
100.0
18114
100.0
0-4 Primary Products
899
21.5
261
10.4
4870
23.4
4360
24.1
5-6 Intermediate Products
1725
41.3
968
38.8
8531
41.1
7338
40.5
7-8 Hannfactured Goods
1525
36.5
1245
50.0
7120
34.3
6304
34.8
I. W. Imports
0
Food & Live Animals
947
24.7
130
5.3
2199
12.7
203
1.1
]
Beverages & Tobacco
40
1.1
4
0.2
174
1.0
36
0.2
2
Crude Materials
466
12.2
823
33.5
1384
8.0
2456
13.3
3
Mineral Fuels & Lubricants
408
10.6
822
33.5
3636
21.0
11387
61.5
1
Animal & Veg. Oils & Fats
55
1.4
40
1.6
98
0.6
12
0.1
4
Chemicals
243
6.3
75
3.0
1134
6.5
1384
7.5
6
Mfgrs. by Chief Material
831
21.7
449
18.3
3710
21.4
2136
11.5
7
Machinery & Transport Equip.
366
9.6
71
2.9
1910
11.0
629
3.4
8
Misc. Manufactures
443
11.6
16
0.7
2935
16.9
131
0.7
9
Items & Transactions n.e.s.
32
0.8
24
1.0
142
0.8
128
0.7
Total
3833
100.0
2453
100.0
17322
100.0
18503
100.0
0-4 Primary Products
1916
50.0
1819
74.1
7491
43.3
14094
76.2
5-6 Intermediate Products
1074
28.0
524
21.4
4844
27.9
3520
19.0
7-8 Manufactured Goods
809
21.2
87
3.6
4845
27.9
760
4.1
Table 6
Composition of I.W. Trade With CMEA, 1979 and 1970, I.W. Exports
(Millions of U.S. Dollars)
Total
Total
go of
%
EE
8 of
1979
I.W. Exports
Bulg.
Chech.
GDR
Hungary
Poland
Rom.
EE
Total EE
USSR
USSR
USSR
EE/USSR
0
Food & Live Animals
82.2
305.7
655.0
109.9
1087.6
298.3
2538.7
12.2
3257.2
18.0
5795.9
14.9
1
Beverages & Tobacco
17.3
10.8
70.5
9.0
29.7
5.6
142.9
0.6
30.8
0.2
173.7
0.4
2
Crude Materials
61.3
200.5
209.1
155.7
421.4
298.5
1346.5
6.5
876.7
9.8
2223.2
5.7
3
Minoral Foola
5.3
34.3
363.5
29.8
41.9
209.9
684.7
3.3
100.0
0.6
784.7
2.0
1
Animal & Veg Oils & Fats
1.9
9.1
63.8
10.8
58.8
13.1
157.5
0.8
95.3
0.5
252.8
0.7
5
Chemicals
214.7
525.8
752.8
643.9
848.4
440.3
3425.9
16.5
1927.0
10.6
5352.9
13.8
6
Mfrs By Chief Material
372.2
444.7
1170.0
775.5
1401.4
941.3
5105.1
24.6
5411.2
29.9
10516.3
27.1
7
Mach & Transport Equip.
316.0
897.0
1323.4
930.3
1612.5
1202.8
6282.0
30.3
5653.7
31.2
11935.7
30.7
8
Misc Manufactures
49.8
138.9
198.2
169.5
165.5
115.8
837.7
4.0
650.5
3.6
1488.2
3.8
9
NES
15.3
25.3
46.2
38.4
58.8
19.7
203.7
1.0
111.6
0.6
315.3
0.8
Total
1136.0
2592.1
4852.5
2872.8
5726.0
3545.3
20724.7
100.0
18114.3
100.0
38839.0
100.0
% of Total
2.9
6.7
12.5
7.4
14.7
9.1
53.4
-
46.6
-
100.0
-
% Growth 70-79
2778
252%
357%
3938
592%
428%
395%
627%
1970
0
Food & Live Animals
18.8
82.1
97.2
64.0
102.1
30.3
394.5
9.4
142.7
5.7
537.2
8.0
1
Beverages & Tobacco
0.9
3.9
14.0
1.2
3.7
1.0
24.7
0.6
4.6
0.2
29.3
0.4
2
Crude Materials
13.1
61.0
88.7
44.4
88.3
43.4
338.9
8.1
107.6
4.3
446.5
6.7
3
Mineral Fuels
11.4
3.6
45.6
3.0
9.8
29.8
103.2
2.5
4.8
0.2
108.0
1.6
4
Animal & Veg Oils & Fats
0.2
3.9
9.1
3.2
19.4
2.6
38.4
0.9
0.1
0.0
38.5
0.6
5
Chemicals
40.6
115.7
125.9
113.2
113.9
62.9
572.1
13.7
254.7
10.2
826.8
12.4
6
Mfrs By Chief Material
102.3
127.4
320.0
179.5
211.4
212.8
1153.4
27.6
713.0
28.6
1866.4
28.0
7
Mach & Transport Equip.
101.4
283.6
320.4
139.5
239.8
264.5
1349.2
32.3
1027.7
41.3
2376.9
35.6
8
Misc Manufactures
10.2
50.1
31.7
31.9
30.1
21.9
175.9
4.2
217.0
8.7
392.9
5.9
9
NES
1.9
5.4
8.8
4.4
8.5
3.3
32.3
0.8
18.7
0.8
51.0
0.8
Total
300.8
736.7
1061.4
584.3
827.0
672.4
4182.6
100.0
2490.9
100.0
6673.5
100.0
% of Total
4.5
11.0
15.9
8.8
12.4
10.1
62.7
37.3
Table 7
Composition of I.W. Trade With CMEA, 1979 and 1970, I.W.
(Millions of U.S. Dollars)
Total
Total
% of
30
RE
7. of
1979
I.W.
Bulg.
Czech.
GDR
llungary
Poland
Rom.
EE
Total EE
USSR
USSR
USSR
EE/USSR
0
Food & Live Animals
139.8
176.0
372.7
550.7
749.5
209.3
2198.8
12.7
203.0
1.1
2401.8
6.7
1.
Beverages & Tobacco
68.4
9.4
19.6
35.9
22.6
18.1
174.0
1.0
36.0
0.2
210.0
0.6
2
Crude Materials
53.0
353.1
201.8
209.7
443.1
122.9
1383.6
8.0
2456.0
13.3
3839.6
10.7
3
Mineral Fuels
120.3
326.8
799.6
134.5
1250.7
1004.5
3636.4
21.0
11387.0
61.5
15023.4
41.9
4
Animal & Veg Oils & Fats
4.4
6.9
8.5
24.2
16.0
37.7
97.7
0.6
12.3
0.1
110.0
0.3
5
Chemicals
37.9
195.0
425.0
211.5
181.8
82.6
1133.8
6.5
1384.5
7.5
2518.3
7.0
6
Mfrs By Chief Material
148.3
751.9
917.6
439.6
904.3
548.7
3710.4
21.4
2135.9
11.5
5846.3
16.3
7
Mach & Transport Equip.
47.9
336.6
449.1
268.8
629.6
178.3
1910.3
11.0
629.5
3.4
2539.8
7.1
8
Misc Manufactures
79.8
335.3
783.1
483.5
529.9
703.3
2934.9
16.9
131.0
0.7
3065.9
8.6
9
NES
7.8
35.7
31.1
26.7
31.9
8.5
141.7
0.8
128.3
0.7
270.0
0.8
Total
707.7
2547.4
4008.1
2385.1
4759.4
2913.9
17321.6
100.0
18503.5
100.0
35825.1
100.0
8 of Total
2.0
8.1
11.1
6.7
13.3
8.1
48.4
51.6
100.0
8 Growth 70-79
2298
278%
332%
370%
378%
167%
352%
654%
169%
1970
0
Food & Live Animals
77.4
73.8
144.9
204.1
310.7
136.3
947.2
24.7
129.8
5.3
1077.0
17.1
1
Beverages & Tobacco
15.8
2.7
3.5
6.9
.8.1
3.3
40.3
1.1
3.8
0.2
44.1
0.7
2
Crude Materials
28.3
90.1
54.1
58.1
134.9
101.0
466.5
12.2
822.7
33.5
1289.2
20.5
3
Mineral Fuels
0.9
51.8
70.5
13.4
221.9
49.7
408.2
10.6
821.9
33.5
1230.1
19.6
4
Animal & Veg Oils & Fats
10.5
1.5
8.7
.6.8
4.8
22.5
54.8
1.4
40.1
1.6
94.9
1.5
5
Chemicals
11.5
44.1
85.6
25.0
46.1
30.7
243.0
6.3
74.7
3.0
317.7
5.1
6
Mfrs By Chief Material
38.4
202.4
223.0
99.7
173.4
94.2
831.1
21.7
449.1
18.3
1280.2
20.4
7
Mach & Transport Equip.
11.6
118.5
153.7
29.9
34.4
18.0
366.1
9.6
71.3
2.9
437.4
7.0
8
Misc Manufactures
18.6
80.5
177.9
57.8
53.7
54.9
443.4
11.6
16.0
0.7
459.4
7.3
9
NES
1.8
8.5
5.5
5.0
8.2
3.3
32.3
0.8
24.0
1.0
56.3
9.0
Total
214.8
673.9
927.4
506.7
996.2
513.9
3832.9
100.0
2453.4
100.0
6286.3
100.0
% of Total
3.4%
10.7%
14.7%
8.1%
15.8%
8.2%
61.0%
39.0%
38
Table 8
I.W. Trade With CMEA Countries
As À Percent of Total Trade
% of Total
Average
1974
1977
1979
1974 thru 1979
European Community
Exports to EE
2.8%
2.7%
2.4%
2.7%
USSR
1.4%
1.8%
1.5%
1.7%
Total USSR/EE
4.2%
4.5%
3.9%
4.4%
Imports From EE
1.8%
2.2%
2.2%
2.1%
USSR
1.4%
1.8%
1.9%
1.7%
Total USSR/EE
3.2%
4.0%
4.1%
3.8%
France
Exports to EE
2.1%
2.0%
2.1%
2.3%
USSR
1.5%
2.4%
2.0%
2.0%
Total USSR/EE
3.6%
4.4%
4.1%
4.3%
Imports From EE
1.4%
1.5%
1.4%
1.5%
USSR
1.1%
1.6%
1.7%
1.5%
Total USSR/EE
2.5%
3.1%
3.1%
3.0%
FRG
Exports to EE
4.2%
4.9%
4.5%
4.6%
USSR
2.1%
2.4%
2.1%
2.4%
Total USSR/EE
6.3%
7.3%
6.6%
7.0%
Imports From EE
2.6%
4.3%
4.2%
3.9%
USSR
1.8%
1.8%
2.5%
2.0%
Total USSR/EE
4.4%
6.1%
6.7%
5.9%
Italy
Exports to EE
3.4%
2.3%
2.0%
2.5%
USSR
2.0%
2.7%
1.7%
2.3%
Total USSR/EE
5.4%
5.0%
3.7%
4.8%
Imports From EE
2.7%
2.4%
2.3%
2.5%
USSR
2.0%
3.1%
2.5%
2.6%
Total USSR/EE
4.7%
5.5%
4.8%
5.1%
Japan
Exports to EE
1.0%
0.9%
0.8%
0.9%
USSR
2.0%
2.4%
2.4%
2.6%
Total USSR/EE
3.0%
3.1%
3.2%
3.5%
Imports From EE
0.4%
0.3%
0.3%
0.3%
USSR
2.3%
2.0%
1.7%
1.9%
Total USSR/EE
2.7%
2.3%
2.0%
2.2%
U.K.
Exports to EE
1.9%
1.5%
1.3%
1.3%
USSR
0.7%
1.1%
1.0%
1.0%
Total USSR/EE
2.6%
2.6%
2.3%
2.5%
Imports From EE
1.2%
1.3%
1.2%
1.2%
USSR
1.7%
2.1%
1.7%
1.8%
Total USSR/EE
2.9%
3.4%
2.9%
3.0%
United States
Exports to EE
0.8%
0.8%
2.8%
1.0%
USSR
0.6%
1.4%
2.1%
1.6%
Total USSR/EE
1.4%
2.2%
4.9%
2.6%
Imports From EE
0.5%
0.5%
0.5%
0.5%
USSR
0.3%
0.2%
0.2%
0.2%
Total USSR/EE
0.8%
0.7%
0.7%
0.7%
39
TABLE 9
EXPORTS TO CMEA COUNTRIES AS A PERCENT OF GNP
$ Billions of Exports
Exports as a Percent of GNP
World
EE
USSR
EE
USSR
TOTAL
France
570
2.0
2.0
0.35%
0.35%
.70
FRG
760
7.654
3.618
1.0
0.48
1.48
Italy
319
1.4
1.2
0.43
0.38
0.81
Japan
1030
0.8
2.46
0.07
0.24
0.31
U.K.
394
1.168
0.891
0.30
0.23
0.52
U.S.
2369
2.1
3.6
0.08
0.15
0.23
EC
2390
13.980
8.649
0.58
0.36
0.94
40
Table 10
1974-79 Exports to USSR/EE By Selected
Western Countries as a Percent of Exports to the World
Total
Chemical Elements
Textile yarn,
Iron & Steel
Metal Mfrs.
Machinery, non-
Electrical
All
& Compounds
fabric, etc
SITC 67
SITC 69
electric
Machinery
Commodities
SITC 51
SITC 65
SITC 71
SITC 72
site 73
EC
4.48
6.98
5.1%
12.6%
3.68
7.4%
3.18
1.4%
France
4.38
9.38
5.9%
8.4%
5.0%
9.0%
1.78
FRG
7.0%
10.38
8.6%
20.4%
5.5%
10.2%
4.58
Italy
4.8%
9.7%
5.4%
17.88
4.98
8.9%
4.4%
U.K.
2.5%
6.38
4.2%
4.8%
2.1%
3.7%
2.2%
Japan
3.5%
5.18
4.9%
7.7%
3.18
6.8%
1.7%
U.S.
2.6%
TABLE 11: Value and Share of Total Imports of Petroleum and
Petroleum Products (SITC 33) by Selected Western Countries from the USSR
(Millions of US dollars)
Importing Country
1974
1975
1976
1977
1978
1979
1974-79
EC
USSR:
1815.6
2047.5
3037.0
3325.4
3681.0
5621.9
19518.4
Total:
55125.1
51919.5
59872.1
62251.4
64143.0
89821.7
383132.8
8 USSR:
3.3%
3.9%
5.1%
5.37
5.7%
6.3%
5.1%
FRG:
USSR:
725.6
682.1
877.5
833.2
1041.0
2081.0
6240.2
Total
12478.8
11733.0
14002.6
14842.0
16115.0
26629.0
84569.4
% USSR:
5.8%
5.8%
6.3%
5.6%
6.5%
7.8%
7.4%
France:
USSR:
115.5
246.7
331.7
472.8
541.0
1001.0
2708.8
Total
10720.8
10503.9
12513.1
12861.1
13304.0
19466.0
79368.9
8 USSR:
1.18
2.48
2.7%
3.78
1.11
5.1%
3.4%
Italy:
USSR:
541.9
519.0
919.9
887.0
852.0
973.0
4692.7
Total:
10236.2
9183.2
9989.8
10860.3
11995.0
16723.0
58987.3
% USSR:
5.3%
5.7%
9.2%
8.2%
7.1%
5.8%
6.8%
Neth.
USSR:
159.3
215.6
253.4
236.7
339.0
695.0
1899.1
Total:
5635.0
5834 2
7361.9
7950.9
7684.0
12696.0
47162.0
% USSR:
2.8%
3.7%
3.4%
3.0%
4.4%
5.5%
4.0%
U.K.
USSR:
68.6
151.4
389.6
479.7
502.0
509.0
2100.3
Total
10612.8
9240.6
9897.2
8831.9
8690.0
11101.0
58373.4
% USSR:
6.5%
1.6%
3.9%
5.4%
5.8%
1.6%
3.6%
Austria
USSR:
134.0
102.8
148.9
190.8
205.0
256.6
1038.1
Total
841.0
806.5
986.8
1020.8
1179.3
1844.0
6678.3
8 USSR:
15.9%
12.8%
15.18
18.78
17.48
13.9%
15.52
Finland
USSR:
871.1
757.4
888.1
1040.9
992.7
1674.1
6224.4
Total
1236.1
1144.7
1305.9
1484.8
1394.7
2584.0
9150.2
% USSR:
70.5%
66.2%
68.0%
70.18
71.2%
64.8%
68.0%
Sweden
USSR:
285.4
345.8
316.1
340.0
427.2
817.0
2531.5
Total
2586.5
2842.9
3092.0
3307.2
3178.0
5963.2
20969.7
% USSR
11.08
12.2%
10.2%
10.3%
13.48
13.7%
12.12
17 EC figures do not include Ireland in 1978 and 1979 or Belgium-Luxembourg in 1979.
Source: Statistics of Foreign Trade, Tsade by Commodities, 1974-79, OECD.
42
Table 12
U.S. and EE/USSR Trade
With Selected I.W. Countries, 1974-79
(Billions of U.S. Dollars)
Exports
To
By
U.S.
1974
1975
1976
1977
1978
1979
EC
U.S.
19.0
16.6
17.8
22.2
29.0
33.3
EE/USSR
11.7
14.5
15.7
16.9
19.3
22.6
FRG
U.S.
6.3
5.4
5.6
7.2
10.0
11.0
EE/USSR
5.6
6.5
7.9
8.5
10.0
11.3
France
U.S.
2.3
2.1
2.5
3.0
4.1
4.8
EE/USSR
1.6
2.6
2.7
2.8
2.9
4.0
Italy
U.S.
2.6
2.4
2.5
3.0
4.1
4.9
EE/USSR
1.6
2.2
2.0
2.3
2.4
2.6
Japan
U.S.
12.3
11.3
15.5
18.6
24.5
26.2
EE/USSR
1.7
2.2
2.8
2.7
3.2
3.3
U.K.
U.S.
4.1
3.8
4.3
5.1
6.5
8.0
EE/USSR
1.0
1.3
1.2
1.5
1.9
2.1
Imports
By
From
1974
1975
1976
1977
1978
1979
EC
U.S.
22.1
22.9
25.4
27.1
32.0
42.6
EE/USSR
9.5
10.4
14.1
15.5
17.9
24.3
FRG
U.S.
5.0
5.2
5.7
6.0
7.0
8.5
EE/USSR
3.0
3.2
5.6
6.2
7.6
10.5
France
U.S.
2.9
3.0
3.4
3.5
4.2
5.6
EE/USSR
1.3
1.7
2.0
2.2
2.5
3.3
Italy
U.S.
2.8
2.9
3.1
2.8
3.4
EE/USSR
4.4
4.1
3.8
4.3
4.7
5.5
7.6
Japan
U.S.
10.7
9.6
10.2
10.5
12.9
17.6
EE/USSR
1.7
1.4
1.4
1.6
1.6
2.2
U.K.
U.S.
4.6
4.5
4.8
6.0
7.1
10.6
EE/USSR
.9
.9
1.2
1.4
1.3
1.8
US-USSR
SYSTEM II
MEMORANDUM
43
NATIONAL SECURITY COUNCIL
SECRET
December 24, 1981
INFORMATION
MEMORANDUM FOR JAMES W. NANCE
FROM:
RICHARD PIPES or
SUBJECT:
Measures to be Taken Against the Soviet Union
As a refinement of Bailey's memorandum to you of December 23 on
measures to be taken against the Soviet Union, I believe that
the measures proposed under Phase I should be listed in order
of descending importance, as follows:
1.
Reduce Soviet diplomatic and consular representation in the
U.S.
2.
The export of all oil and gas equipment and technology
to the Soviet Union, to be placed under national security
controls.
3.
Cancel all cultural, scientific and academic agreements
with the Soviet Union.
4.
Escalate radio broadcasting and anti-jamming activities
toward the Soviet Union.
5.
Expel all Soviet commercial representatives, close their
offices and close our commercial offices in the USSR.
6.
Invoke the "exceptional circumstances" clause of the 1980
agreement on the rescheduling of the Polish official debt.
7.
Promote the condemnation of Soviet involvement in the
Polish situation in international organizations.
8.
Ban Soviet fishing in U.S. waters. (s)
mb
Norm Bailey concurs.
DECLASSIFIED
NLRR F06-114/10 #11318
SECRET
BY as NARADATE 1/2/08
Review December 24, 1987.
SECRET
PIPES
MEMORANDUM
SYSTEM II
44
NATIONAL SECURITY COUNCIL
December 23, 1981
SECRET
INFORMATION
auti- meaning
MEMORANDUM FOR JAMES W. NANCE
FROM:
NORMAN A. BAILEY M
SUBJECT:
Measures to be taken Against the Soviet Union
Pursuant to the National Security Council decisions of
December 22, 1981, depending upon the response to the
President's letters to General Jaruzelski and Mr. Brezhnev,
the following measures will be taken against the Soviet
Union:
Phase I (Measures to be taken immediately upon receipt of
an unsatisfactory reply to the President's letters or
evidence of increased repression.)
druthin dues
5.
make
1. Expel all Soviet commercial representatives, close
sure if
their offices and close our commercial offices in the USSR.
mide per an.
2. 8 Ban Soviet fishing in U.S. waters.
6
3. Pressure U.S. banks to suspend all credits to the
allm
Manume
Soviet Union. ZIC"E yill.
-
4. Reduce Soviet diplomatic and consular representation
2
in the U.S.
to 100
7
5. Promote the condemnation of Soviet involvement in the
Polish situation in international organizations.
3
6. Cancel all cultural, scientific and academic agree-
3
ments with the Soviet Union.
4
7. Escalate radio broadcasting and anti-jamming
activities towards the Soviet Union.
2
8. Halt the export of all oil and gas equipment and
1
technology to the Soviet Union, to he placed under Nahmal recenty with.
Phase II (To be triggered by increased repression, but at
the latest by January 15, 1982, given the scheduled meeting
of Secretary Haig and Mr. Gromyko January 26-28.)
DECLASSIFIED
SECRET
Review December 23, 1987
NLRR F06-14/10 11320
SECRET
BY Cis NARA DATE E1/7/08
SECRET
2
1. Suspend Aeroflot service.
2. Refuse to renegotiate the Soviet/American Maritime
Agreement.
3. Recall our Ambassador.
4. Cancel the Haig/Gromyko meeting.
5. Walk out of the CSCE in Madrid after denouncing
the Soviets.
6. Rescind the International Harvester export license.
7. Impose an embargo on exports of all high technology
items to the Soviet Union.
Phase III (Triggered by increased repression or Soviet
direct or indirect intervention, but in any case not later
than February 18, 1982.)
1. Impose a total trade embargo with the Soviet Union.
2. Pull out of the MBFR negotiations.
3. Denounce the Helsinki Final Act.
A copy of State's paper is at Tab I. Defense's paper is
at Tab II.
cc:
Richard Pipes
Allen Lenz
Paula Dobriansky
Chris Shoemaker
Carnes Lord
Dennis Blair
Attachments
Tab I
State Paper entitled "Poland: Possible Actions
Against the USSR"
Tab II
Defense Paper entitled "Economic Sanctions"
SECRET
SECRET / SENSITIVE
46
POLAND: POSSIBLE ACTIONS AGAINST THE USSR
I. Actions to Date
Thus far since the imposition of martial law in Poland, we
have taken no concrete steps against the Soviet Union. Our
diplomatic representations have been confined to Under Secretary
Stoessel's December 13 meeting with Soviet Charge' Bessmertnykh,
during which we handed over the text of Secretary Haig's 4:00
p.m. Brussels statement, and stressed the necessity for non-
interference and a return to a process of negotiation and
compromise in Poland. Stoessel also underscored our concern
over the Polish situation in an informal encounter with Soviet
Ambassador Dobrynin on December 18. In addition, at the INF
negotiations Paul Nitze put the Soviets on notice that Polish
developments could not but affect the future of the talks. We
are presently planning a Presidential letter to Brezhnev warning
against Soviet intervention and making clear we hold the Soviets
responsible. Publicly, the President's December 17 statement
put the Soviets on notice that we hold them responsible for the
Polish crackdown, and we have placed increasing emphasis on the
Soviet role in our public statements since then.
II. Possible Unilateral U.S. Actions
The following are possible actions which we could take
unilaterally against the Soviets, if the Polish crisis reaches
the point that we want either (1) to seek to deter the Soviets
from bringing about a major escalation in repressive action
against the Polish people, or (2) to impose punitive sanctions
against Moscow following direct Soviet intervention. In some
instances, these actions would have a substantial impact on the
Soviets regardless of whether the Allies took parallel action;
in other cases lack of Allied support would make their effects
largely symbolic.
In considering the possible options, we should keep in mind
the need to avoid a split among Western nations of the kind that
occurred after the Soviet invasion of Afghanistan (and we can
count on the Soviets to work hard to this end). At the same
time, we should remember that any unilateral action could bring
Soviet retaliation in kind against us.
A. Broad policy initiatives:
NLRR #11330
1/2/08
1.
Call for an emergency U.N. Security Council meeting
and, if appropriate, a meeting of the General Assembly to
condemn Soviet or Soviet-sponsored repression in Poland. This
could be part of a general political offensive aimed at
DECLASSIFIED
NARA DATE
highlighting the Soviet role in the Polish crackdown.
Pros: -- Focusing international attention on Soviet/Polish
behavior could have an important deterrent effect.
Cons: -- Soviets can block UNSC action; UNGA debate could
G
be counterproductive if it only demonstrated
traditional U.N. cleavages.
SECRET/SENSITIVE
RDS-3 12/22/01
SECRET/SENSITIVE
47
- 2 -
2. Play the China Card: (a) High-visibility consultations
with the Chinese; (b) sell high-technology weapons systems to
Beijing
Pros: -- Signals high international costs of Soviet
involvement in Poland.
Cons: -- Would touch such a raw nerve with the Soviets
that it could remove the disincentives to massive
Soviet intervention in Poland.
-- Chinese may attempt to extract a price with
respect to Taiwan, resist political manipulation.
-- Chinese may be unable to pay for the weapons.
3. Seek to isolate the USSR economically: (a) impose
total trade embargo, encompassing both agricultural and
industrial exports; (b) expel all Soviet commercial
representatives; (c) ban Soviet fishing in U.S. waters;
(d) discourage tourist travel to the USSR; (e) suspend Aeroflot
service to the U.S. and end Soviet maritime access to U.S.
ports; (f) suspend negotiations on economic matters;
(g) pressure U.S. banks to curtail credits.
Pros: -- Would be strong signal of end to business-as-
usual.
-- Curtailing our major agricultural as well as
industrial trade is a prerequisite to getting
Europeans to impose across-the-board trade
restrictions of their own.
-- Would cause immediate short-term economic
dislocations for Soviets.
Cons: -- Economic impact would be severely diluted without
Allied imposition. of corresponding measures.
-- Economic warfare could cause Soviets and Poles to
repudiate over $40 billion in debts to the West.
-- Allies highly unlikely to go along except in case
of all-out Soviet intervention; even then,
measures not likely to remain in effect for very
long.
-- Allies will resist specific aspects of trade
embargo, e.g. export of oil/gas extraction
technologies, given divergence of view on
desirability of assisting Soviet energy sector.
-- Domestic economic interests will resist,
particularly if embargo not supported by Allies.
SECRET/SENSITIVE
SECRET/SENSITIVE
48
- 3 -
-- Would require spending $3-5 billion to support
grain prices.
4.
Seek to isolate the USSR politically: (a) sharply
reduce levels of diplomatic representation in Moscow and
Washington; (b) seek condemnation of USSR in international
organizations, e.g. UN, ILO, CSCE; (c) cancel all remaining
cultural, scientific, and academic exchange agreements, and
discourage private exchanges; (d) escalate radio broadcasting/
anti-jamming efforts directed toward the Soviet audience
(consider direct-broadcast satellites); (e) request Ambassador
Dobrynin's recall, withdraw Ambassador Hartman.
Pros: -- Would be dramatic political slap-in-face for
Soviets, symbolizing end to business-as-usual.
-- Conveys high and lasting cost of Soviet-
sponsored repression in Poland.
Cons: -- Allies would criticize reduction in US-Soviet
dialogue at time of crisis.
-- Could remove disincentives to massive Soviet
intervention in Poland.
-- Could precipitate greater Soviet risk-taking in
third world.
5. Propose a large-scale international assistance program
for Poland (a new Marshall Plan).
Pros: -- Would put U.S. on propaganda high ground.
-- Could provide inducement for bringing about end
to martial law.
-- If implemented, would increase Western influence
over Poland at Soviets' expense.
Cons: -- Difficult to keep program from becoming bail-out
of Polish economy, relieving Soviets of their
share of the burden.
-- Would require huge USG budgetary outlays;
international financial backing also doubtful.
-- Soviets likely to veto Polish acceptance.
B. Special Cases:
la. Postpone or cancel the January 26-28 Haig/Gromyko
meetings (variant: inform Soviets that U.S. agreement to
meetings is "under review") in light of Polish developments.
SECRET/SENSITIVE
SECRET/SENSITIVE
49
- 4 -
Pros: -- Will indicate to Soviets that cooperative side of
relationship is in jeopardy.
-- "Under review" formula would leave us option to
go ahead with meetings if Polish situation
improved.
Cons: -- Allies would criticize cut-off of East/West
dialogue at moment of crisis.
-- Haig/Gromyko would be useful forum to register
our concerns about Poland at Politburo level.
-- Cancelling meetings would impede our efforts to
pursue resolution of other regional problems,
e.g. Afghanistan, Cuba.
lb. Request early Haig/Gromyko meeting to discuss Polish
crisis.
Pros: -- Would provide early forum to drive home to Soviet
leadership the consequences of their actions in
Poland.
-- Would be applauded by Allies as appropriate
enhancement of East-West dialogue in crisis
period.
Cons: -- Soviets would likely demand Moscow as venue,
which would cast us in role of supplicant.
-- Meeting likely to be unproductive, with Gromyko
taking hard line on U.S. "interference" in Polish
internal affair.
2. Postpone resumption of INF negotiations (variant: make
resumption contingent on developments in Poland)
Pros: -- Denies Soviets high priority arms control forum.
-- Casts Soviets as responsible for breakdown in INF
process.
Cons: -- Allies likely to object absent overt Soviet
involvement in Poland, particularly if U.S. move
rekindles peace movement.
3. Announce U.S. refusal to set a date for the start of
START negotiations.
7
Pros: -- Would deny Soviets their much-sought resumption
of the SALT process.
Cons: -- Soviets could react by ending their informal
observance of the SALT II limits.
SECRET/SENSITIVE
SECRET/SENSITIVE
50
- 5 -
-- Could raise objections on the part of the Allies.
-- Later imitiation of START could entwine tálks in
1984 electoral politics.
4. Abrogate Suspend the Helsinki Final Act
Pros: -- Would dramatize Soviets' flagrant violation of
CSCE principles in their dealings with Poland, as
well as on human rights.
-- Would signal that we do not accept the Soviet
view that the post-war division of Europe gives
them special rights to intervene in Eastern
Europe.
Cons: -- This idea was proposed by President Carter after
Afghanistan, and then dropped. As then, the
Allies are likely to oppose on principle, and to
object strongly to U.S. unilateral action without
consultation.
-- Undermines the legitimacy of challenging the
Soviets on human rights abuses/emigration, based
on the Soviets' own adherence to the Final Act,
5. Pull out of the MBFR Negotiations
Pros: -- Would emphasize how Soviet actions in Poland make
a mockery of the notion of force reductions and
confidence-building measures in central Europe.
-- Little cost, since talks stalemated anyway.
Cons: -- Allies, especially Germans, may resist.
-- If done unilaterally, would create strains in
Alliance about failure to consult.
III. Actions we would want to take in concert with the Allies
.
The Allies have expressed outrage over events in Poland
individually, as well as through NATO and the EC-10, but with
nuances. Like the US, France has been tough on the Soviets.
Others -- the FRG, Canada, Scandinavians,, and the Benelux
among them -- have held off direct criticism of the USSR,
focusing instead on repression within Poland, although the
Allies may be increasingly willing to follow our lead on a
robust line toward the Soviets. Italy and the FRG are both
reluctant to use major sanctions now on the Soviets, arguing
that we should save such ammunition for later, and many others
would likely agree. France, toughly anti-Soviet, is
consistently reluctant to join in sanctions that hurt French
economic interests and often plays a blocking role on COCOM
consensus.
SECRET/SENSITIVE
SECRET SENSITIVE
51
- 6 -
On balance, we can expect fair to good support on symbolic
and political measures, including tough ones like warning the
Soviets on CSCE or INF. But, if we push now for economic
measures with teeth, we will face strong resistance and the
argument that we are prematurely using up our deterrence.
Possible Allied measures, apart from the NATO-agreed
"menu, " include:
1. Suspend fulfillment of existing contracts (the
NATO-agreed package would only embargo new contracts)
Pros: -- Would increase economic costs to Soviets
Cons: -- Allies will resist since it would cause a major
immediate shock to their weak economies.
-- Bad precedent in broader international context.
-- Would bankrupt some individual firms.
2.
Call for emergency CSCE meeting on Poland.
Pros: -- Would highlight unacceptability of Polish/Soviet
actions in context of Helsinki Final Act, and
could act as deterrent.
-- Even if Soviets and friends refused to
participate, thereby preventing consensus
necessary for convening meeting, just the call
for it would be effective in putting Soviets on
notice.
Cons: -- Since CSCE procedures require consensus, results
of the meeting are likely to be minimal.
3. Measures parallel to U.S. steps to isolate Soviets
politically (see item 4 on page 3, above)
Pros: -- Would reinforce political message if Allies
joined with us
Cons: -- Across-the-board reduction in East-West contacts
will meet stiff Allied resistance.
IV. Assessment
Poland obviously represents a vital interest for the USSR,
and the Soviets will intervene no matter what actions we take
if they perceive a clear threat to Poland's status as a member
of the Warsaw Pact, or a fundamental change in Poland's
political orientation. Drastic actions on our part, in
addition to being ineffective, seem certain to strain the
Alliance to the breaking point, and to preclude or make it
immensely difficult for us to capitalize on the Polish
SECRET/SENSITIVE
SECRET/SENSITIVE
52
- 7 -
crackdown, as well as to strengthen Allied support for
important NATO programs. At the same time, the Polish crisis
cannot be short-lived: even a highly repressive martial law
regime will not resolve Poland's massive economic problems,
which in turn can cause social disorder and prompt Soviet
intervention.
Against this somber backdrop, the modalities of applying
bold measures against the Soviets become vitally important.
Rash actions would undoubtedly divide NATO and prematurely
deplete our ammunition; even more moderate actions taken late
could make us look foolish and ineffective, even if they have a
long-term punitive effect.
On timing, we should apply bold measures only when we see a
high probability of irreversible Soviet actions that would
throw Poland back to its pre-August, 1980 status. Apart from
Soviet military intervention, this could involve such actions
within Poland as the trial and imprisonment of Walesa, or
widespread and prolonged use of brutality in suppressing human
freedoms.
The method of application could be fine-tuned as follows:
we would first make clear threats, which convey to Moscow
exactly what we expect of the Soviets, and when, and specify
what will follow from us if the Soviets refuse to go along.
This should be done in diplomatic channels, both in Washington
and in Moscow. We could also divide our major actions into two
categories: those that do not destroy the core of the
relationship, and those that directly affect the core, e.g.,
INF, START, CSCE Final Act. We would use first category
actions in an initial salvo, reserving the second for follow-up
action as subsequent events make necessary.
If we wish to pursue a course of this severity, we must be
prepared to carry through our threats effectively. The worst
possible outcome would be robust words followed by flabby
actions. We should immediately commence intensive preparations
within the Administration, as well as intensive consultations
with our Allies and friends abroad.
SECRET/SENSITIVE
SECRET
53
Economic Sanctions
1.
Cancel the Caterpillar pipelayer. license.
2. Cancel the International Harvester license for the U.S.S.R.
3. Halt export of oil and gas equipment to the Soviet Union.
Place equipment and technology under national security controls.
-- This action will send a powerful signal to the Soviets
that the West will not support a major growth industry
while the Soviets are, directly and indirectly, using force
to crush Solidarity.
4. Suspend negotiations on new maritime agreement and impose strict
port access requirements when the present agreement expires on
31 December.
5. Delay or refuse to set new dates for talks on the "long term grain
agreement."
-- This will support the drive by the Trade Unions who may not
load Soviet ships with grain in support of Solidarity.
6. Terminate the 1976 fisheries agreement with the U.S.S.R. and
deny Soviets entry into U.S. fishing zones as permitted under
that agreement.
-- This will bring economic harm to the Soviets.
7. Suspend all validated export licenses to the U.S.S.R. for
electronics, computers, and other high technology categories.
8. Halt exports of equipment and technology for the West Siberian
pipeline and call upon allies to cancel credit arrangements for
the pipeline project.
-- The West Siberian pipeline will become the most significant
hard currency earner for the U.S.S.R. Its cancellation
would be a powerful blow against Soviet economic and
political ambitions in Western Europe.
9. Embrago Grain Shipments to the U.S.S.R.
--
At this time of year, suspension of grain shipments will
impose severe burdens on the Soviet Union. Even without
allied cooperation, the Soviets will have serious problems
filling their requirements during the remainder of the
winter.
DECLASSIFIED
NLRR Fob-114/10 #11332
BY CN NARA DATE 1/2/08
SECRET
SITE
Pipes
OF STATE
TB3
54
81 DECISE
1771 DIC 25 PM 6
S/S #
P6: 45
001031
S/T
DX MESSAGE NO.
CLASSIFICATION
SECRET
No. Pagesl
ROM: HARRY KOPP
EB/TDC
22532
3831A
(Officer name)
(Office symbol)
(Extension)
(Room numbe
ESSAGE DESCRIPTION Note on Soviet Economic Measures
ax TO: (Agency)
DELIVER TO:
Extension
Room No.
NSC
Norman Bailey
395-4985
373
RECEIVED
Time Stamp
WHSR
ROUTE SLIP
81 7EC23 81 P6: 47
ather surg
STAFF
C/O
Allen
Nance
Colson
pew
Poindexter
Bailey C
ung
DECLASSIFIED
Department of State Guidelines, July 21, 1997
By as
NARA, Date 8/5/12
NSC S/S
C
C : Copy
O: Original
55
department OF STATE
Washington, D C. 20520
SECRET
December 23, 1981
TO: NSC Mr. Bailey
Norm . -
Here is a quick estimate of costs on some of the items
on the list:
-- Ban Soviet fishing: Soviet fishing was banned after
Afghanistan and has not been allowed to resume. Soviet factory
ships operate in U.S. waters to process U.S. -caught fish in
a U.S.-Soviet joint venture based in Bellingham, Washington.
Soviet purchases of U.S. fish under this arrangement were
$4 million in 1980. Loss of those sales would be borne by
Pacific Coast fishing interests. There would be no cost to
the USG. Pacific Coast Congressmen have strongly supported the
joint venture, which was exempted from action after Afghanistan.
Soviet permits to operate in U.S. waters expire December 31.
(The National Marine Fisheries Service (NMFS) has been asked
not to renew the permits without further instruction.)
-- Let the Maritime Agreement lapse: The agreement
expires December 31. Its expiry would impose no costs on. the
USG and negligible costs on the U.S. economy.
-- Suspend Aeroflot landing rights: No costs to USG.
Pan Am (which dropped service to Moscow in 1978) would probably
lose valuable overflight rights. Two U.S. firms (Gen Air
and Capitol) that are seeking authority to serve Moscow would
see their prospects disappear.
H7
Harry Kopp
State/EB/TDC
DECLASSIFIED
NLRR F06-114/10 #11333
BY CN NARA DATE 1/2/08
SECRET
RDS-2 12/23/2001
Sanctium
4105
56
MEMORANDUM
NATIONAL SECURITY COUNCIL
vanailles
INFORMATION
June 11, 1982
MEMORANDUM FOR WILLIAM P. CLARK
FROM:
HENRY R. NAU /PN
SUBJECT:
Versailles Summit: East-West Export Credits
I have written up for your benefit and for colleagues on the
NSC staff, the attached account and assessment of the Summit
events relating to the East-West credit issue.
What we achieved and what we need to do to follow up on this
issue are discussed, beginning the middle of page 3. In my
view, our follow-up must be vigorous, patient and persistent.
The worst course of action would be to back off or drop this
issue, especially after the intense discussion that took place
at the heads of government level. The Europeans and Japanese
would simply read this as another case of the U.S. waxing hot and
cold on an issue. They would redouble their determination to
resist us the next time we raise a disagreeable issue, knowing
that if they resist long enough, the United States will cool off.
I have provided a version of this paper which begins with the fourth
paragraph on page 2, to State, Treasury, Commerce and Defense.
CC: N. Bailey
R. Robinson
W. Martin
D. Gregg
R. Pipes
J. Rentschler
D. Blair
DECLASSIFIED (REleaseD)
NLRR F06-114/10 #11323
BY G NARA DATE 1/2/08
REPORT ON THE EAST-WEST CREDIT ISSUE
57
AT THE VERSAILLES SUMMIT
The opening shots on this issue were fired already on Thursday
before the Summit. Cheysson backgrounded the American press
that France was prepared to accept the OECD credit arrangement.
Be billed this decision as a major French concession and
implied that no one should expect more from the French on
the East-West credit question. As we had anticipated, the
French tried to confuse the press on the distinction between
OECD credit arrangement on one hand and the Buckley East-
West credit issue on the other.
When we inquired from the French whether they indeed accepted
the OECD credit arrangement, we received no answer.
On Thursday afternoon, Haig briefed the President and argued
for flexibility on the sanctions issue as a means for inducing
the Summit allies toward a favorable decision on credits.
At the time, be believed that we would achieve little more
than language calling for limits on East-West credits.
Hormats and Leland drafted a paragraph for the communique
which used the word "limit" with respect to export credits.
I pointed out to Judge Clark that the issue was being badly
confused, that the President had agreed not to extend the
sanctions extra-territorially if he obtained a satisfactory
credit agreement, but that he had never implied that he
would lift existing sanctions. On my own initiative, I sat
down and drafted talking points which related the sanctions
issue back to the Polish situation and to the President's
objective of a credit arrangement at the Summit which "restricted"
credits and provided for a follow-up "mechanism." The
credit arrangement envisioned in these talking points was
clearly more than an arrangement merely to limit credits.
It was only in the context of such an agreement going beyond
limits that the last talking point concerning flexibility on
the sanctions issue was added.
Judge Clark read and liked the talking points and showed
them to the President, who also indicated that they conformed
to his position. The talking points became the basis for
the President's bilateral with Suzuki in which he responded
to the Sakhalin issue by emphasizing the relationship of the
sanctions to the Polish situation and to his desire for a
credit agreement at the Summit which had real teeth (the
President mentioned the word "restricting" credits in his
response to Suzuki). At the end of his response, he did
indicate that if the Polish situation changed or a satisfactory
credit agreement were reached, he would try to be flexible
on sanctions.
DECLASSIFIED RE/EASO)
NLRR F06-114/10 1325
BY CN NARA DATE 1/2/08
58
-2-
All day Friday and Saturday, Haig's efforts were directed
towards securing the agreement of other Summit countries to
the language calling for limits. Rick Burt participated in
the working groups on this issue. As of Saturday night,
Burt reported that there was absolutely no acceptance by the
others of the term "limits."
On Sunday morning, Clark received the McFarlane memo commenting
on the President's talking points. He instructed me to be
sure that both the talking points and the McFarlane memo were
placed before the President in the plenary session on Sunday
morning. I was the notetaker in that session and put the two
papers before the President with a note scratched in the margin
of the talking point paper alongside the last tick (dealing with
flexibility) which read, "Judge Clark does not believe that you
want to go this far." I then explained to the President that
the reasons for not going that far were indicated in the
McFarlane memo.
Hormats relieved me as notetaker before the East-West subject
was raised. I returned as notetaker only after the President's
intervention and in the early stages of the discussion of the
communique language on East-West issues (to my knowledge,
therefore, there was no discussion in the plenary session that
referred to the sanctions issue).
The discussion on communique language for the East-West issue
lasted almost three hours. It began about 11:15 with
two alternatives on the table -- one calling for limits which
had been proposed by Prime Minister Thatcher, and the other
calling for managing credits proposed, I believe, by the
Canadians. There was clearly no agreement on the matter.
Mitterrand proposed that they put the East-West issue aside
and continue with the rest of the communique. There were
short interventions on the North-South language in the
communique before the President intervened to ask whether or
not the leaders intended to agree at this point on the North-
South language. He stated that he felt he needed more wording.
The President asked if the session might adjourn for lunch,
during which time he could give the North-South language
further thought (it was now about 12:15 and the session was
scheduled to conclude at 12:00). Mitterrand said that he could,
of course, accept the President's suggestion, but that if they
adjourned for lunch, the whole world would know about their
differences. Mitterrand proposed instead a 20-minute break.
The President replied that he did not require a 20-minute break.
He simply noted that there were two issues to be decided --
East-West and North-South -- and he wanted to know how the
group intended to proceed.
59
- 3 -
After a few minutes of buzzing around, Mitterrand returned
the discussion to the East-West language. For the next two
hours the participants slugged it out. At the outset, three
leaders adamantly opposed the word "limiting" -- Trudeau,
Schmidt and Mitterrand. Reagan and Thatcher strongly supported
this language, while Spadolini and Suzuki leaned quietly
toward the Reagan-Thatcher position. As the conversation
evolved, it became apparent that the leaders opposing the
word "limiting" were losing the battle. Mitterrand tried on
several occasions to confuse the issue by calling for the
limiting of public and private export credits and by including
exports as well as export credits under the application of
the word "limit." These were rejected and eventually Trudeau
indicated that he could accept the language as long as it did
not imply arbitrary cutbacks in credit. After a couple more
interventions, Schmidt indicated that he too could go along
with the language. At this point the language read "the
need for limiting export credits in light of commercial
prudence.' Mitterrand was now isolated. Spadolini intervened
to suggest a cosmetic face-saving amendment. He suggested
that the words "in light of commercial prudence" be struck
and the phrase be reworded: "the need for commercial prudence
in limiting export credits." By removing "limiting" from
the action part of the sentence, the Spadolini suggestion
provided Mitterrand with just enough of a face-saver to
cause him to agree immediately.
The issue was closed, the last of the communique was approved
within 10 minutes, and the session adjourned a little after
2:30, more than 2 1/2 hours late.
The plenary discussion suggests, as nothing else can, the
extreme difficulty of this issue. The US obtained agreement
to the word "limiting" only after a long and tough discussion
among the heads of government and state and only after
Mitterrand was completely isolated by his colleagues. We
should therefore not underestimate what we achieved by
obtaining this agreement on the word "limiting." We must
exploit this agreement to the fullest possible extent and
retain the patience and the persistence to press this issue
forward toward the next significant objective, even if it
requires another year and another Summit to achieve.
The communique language is an important foot in the door.
It does three things:
-- It requires governments to exercise commercial prudence
in providing export credits. We should interpret
commercial prudence to mean economic or market standards
i.e. no subsidization of credits provided by governments
(or official credits).
60
-4-
--
Secondly, the commitment to exercise commercial prudence
does not exist in a vacuum, but is linked with the
objective of limiting export credits. Now limiting
does nto necessarily mean reducing, but it does imply
some ceilings on increasing the levels of export credits.
No numerical ceilings have been defined at this point,
but the word "limiting" implies such ceilings and our
next effort should be directed toward defining these
ceilings.
--
Thirdly, the communique language calls for periodic ex-post
review of the development of economic and financial relations
with the East. This is the handle for perpetuating the
existence of the Buckley group. Some will argue that this
ex-post review should be conducted in the OECD which is
mentioned earlier in the same paragraph. We should insist
that, coming as it does after the commitment limiting export
credits, the ex-post review was intended to be carried out by a
separate group. This group's purpose should be to review
recent trends in the supply of export credits and, where
these credits are now increasing, to ask for explanations
in light of the above commitment by the Summit heads of
ggovernment and State.
We should lose no time in following up these gains, however slight
they may appear to be. They constitute important steps forward
and have to be exploited aggressively and expeditiously if we
have any prospect of making further significant progress on this
very difficult issue by the time of the next Summit.
Finally, we should not underestimate the psychological and political
benefits of a statement by Summit leaders which, for the first
time, acknowledges the need to limit economic activity with the
Soviet Union and Eastern Europe. Moreover, this limitation, while
justified on economic rather than political grounds ("commercial
prudence"), follows indirectly from the first sentence of the
East-West language in the communique which calls for "a prudent
and diversified economic approach to the USSR and Eastern Europe,
consistent with our political and security interests." (emphasis
added) The use of such language by heads of Government can have
a discouraging effect over time on East-West trade, not unlike
the encouraging effect detente language had in the 1970s.
Prepared by: Henry R. Nau
6/9/82
CONFIDENTIAL
sanction
61
NATIONAL SECURITY COUNCIL
MESSAGE CENTER
PAGE 01
SECSTATE WASHDC 0005
DTG: 190548Z JUN 82 PSN: 025975
E0B653
AN003537
TOR: 170/0706Z
CSN: HCE674
HENDERSON OBSERVED THAT THE DECISION WOULD NOT AFFECT THE
POLISH SITUATION OR DELAY CONSTRUCTION OF THE YAMAL GAS
DISTRIBUTION: BALY-01 GAFF-01 MYER-01 GREG-01 LEVN-01 NAU-01
PIPELINE AS MUCH AS WOULD SOVIET INEFFICIENCY. HE ADDED
PIPE-01 RENT-01 RUSS-01 WEIS-01 ROBN-01
THAT THIS DECISION WOULD RAISE TENSIONS ALREADY HEIGHTENED
/011 A2
BY US MOVES ON STEEL AND US-EC AGRICULTURAL DIFFER-
WHSR COMMENT: CHECKLIST
ENCES, A POINT ECHOED BY BELGIAN AMBASSADOR SCHOUMAKER,
WEARING HIS EC PRESIDENCY HAT. THE FRENCH AMBASSADOR
WHTS ASSIGNED DISTRIBUTION:
NOTED THAT THE DECISION WOULD "CREATE MAGNIFICENT LEGAL
SIT: CKLS
PROBLEMS." THE ITALIAN CHARGE SAID THE ANNOUNCEMENT
EOB:
COMBINES WITH THE TOUGH TONE OF THE PRESIDENT'S SPEECH IN
NEW YORK TO SEND A SIGNAL TO THE USSR AND INDICATES THAT
THE US WAS DISSATISFIED WITH THE RESULTS OF THE VERSAILLES
SUMMIT ON EAST-WEST ECONOMIC RELATIONS. (SEPTEL FOLLOWS
OP IMMED
ON THE MEETING WITH JAPANESE AMBASSADOR .)
DE RUEHC #0005 1700700
0 190548Z JUN 82 ZEX
FM SECSTATE WASHDC
4. EMBASSIES IN COUNTRIES DIRECTLY AFFECTED BY THE
PRESIDENT'S DECISION ARE REQUESTED TO INFORM HOST
TO ALL OECD CAPITALS IMMEDIATE
GOVERNMENTS. EAGLEBURGER
AMEMBASSY MOSCOW IMMEDIATE 5332
BT
AMEMBASSY WARSAW IMMEDIATE 4622
AMEMBASSY BRUSSELS IMMEDIATE 0662
AMEMBASSY PARIS IMMEDIATE 6938
USMISSION USNATO IMMEDIATE 0625
CONF IDENTIAL STATE 170005
BRUSSELS ALSO FOR USEEC, PARIS ALSO FOR USOECD
E.O. 12065: GDS 6/18/88 EAGLEBURGER, L.)
TAGS: ENRG
SUBJECT: SANCTIONS ON OIL AND GAS EQUIPMENT EXPORTS
1. AT AN NSC MEETING JUNE 18, THE PRESIDENT REVIEWED
THE SANCTIONS ON THE EXPORT OF OIL AND GAS EQUIPMENT TO
THE SOVIET UNION IMPOSED ON DECEMBER 30, 1981 AND
DECIDED TO EXTEND THESE SANCTIONS THROUGH ADOPTION OF
NEW REGULATIONS TO INCLUDE EQUIPMENT PRODUCED BY
SUBSIDIARIES OF U.S. COMPANIES ABROAD AS WELL AS
EQUIPMENT PRODUCED ABROAD UNDER LICENSES ISSUED
BY U.S. COMPANIES. IN ADDITION, THE PRESIDENT DECIDED
NOT TO LIFT THE SANCTIONS ON OIL AND GAS EQUIPMENT EXPORTS
TO THE USSR GOVERNED BY EXISTING CONTRACTS, NOR TO APPROVE
EXPORT LICENSES FOR THE SAKHALIN PROJECT.
2. THE PRESIDENT'S STATEMENT TO THE PRESS NOTES THAT:
QUOTE THE OBJECTIVE OF THE UNITED STATES, IN IMPOSING
THE SANCTIONS HAS BEEN AND CONTINUES TO BE TO ADVANCE
RECONCILIATION IN POLAND. SINCE DECEMBER 30, 1981, LITTLE
HAS CHANGED CONCERNING THE SITUATION IN POLAND; THERE HAS
BEEN NO MOVEMENT THAT WOULD ENABLE US TO UNDERTAKE POSITIVE
RECIPROCAL MEASURES. THE DECISION TAKEN TODAY WILL, WE
BELIEVE, ADVANCE OUR OBJECTIVE OF RECONCILIATION IN POLAND.
UNQUOTE.
3. ACTING SECRETARY EAGLEBURGER HAS INFORMED THE
E;BASSIES OF FRANCE, THE FEDERAL REPUBLIC OF GERMANY,
THE UNITED KINGDOM, ITALY, BELGIUM, AND JAPAN OF THE
PRESIDENT'S DECISION. ALL EMBASSY REPRESENTATIVES
EXPRESSED CONCERN AND DISAPPOINTMENT WITH THE DECISION.
DECLASSIFIED
THE FRG CHARGE ASKED WHETHER THE EXTENSION INCLUDED AEG
KANIS (EAGLEBURGER CONFIRMED THAT IT DID) AND WHETHER THE
NLRR F06-114/10 # 11334
EXTENSION MIGHT BE REVOKED (EAGLEBURGER SAID ANY SUCH
DECISION WOULD PROBABLY BE LINKED TO CHANGES IN THE POLISH
SITUATION). UK AMBASSADOR HENDERSON ASKED WHETHER THE
BY as NARA DATE 1/2/08
EXTENSION APPLIES TO EXISTING CONTRACTS (EAGLEBURGER
CONFIRMED THAT IT DID). HE ASKED WHY THE DECISION DID NOT
APPLY TO USA GRAIN EXPORTS TO THE USSR AND INDICATED THAT
THERE IS A "PROBLEM OF LOGIC" IN THE US DECISION.
CONFIDENTIAL
Sanctime
62
Pipes:
226
National Security Council
The White House
&
Package # 4524
SEQUENCE TO
ACTION
1
John Poindexter
2
Bud McFarlane
HAS Im SEEN
3
Jacque Hill
4
WPC HAS
SEEN
Judge Clark
John Poindexter
5
of
Staff Secretary
Sit Room
ROBINSON
6
A
I-Information A-Action R-Retain D-Dispatch
DISTRIBUTION
cc:
VP
Meese
Baker
Deaver
Other
COMMENTS
SECRET
63
4524
MEMORANDUM
NATIONAL SECURITY COUNCIL
June 22, 1982
SECRET
DECLASSIFIED
INFORMATION
NLRR F06-114/10 11327
BY Gs NARA DATE 1/2/08
MEMORANDUM FOR WILLIAM P. CLARK
Pur
FROM:
ROGER W. ROBINSON
SUBJECT:
Reciprocal U.S. Gesture for Positive Development
in Poland
We need to address the question of what the United Stats
would be prepared to do should the Poles take a meaningful
step toward reconciliation, i.e. release Walesa and some
other prisoners. I chose not to provide a plausible scenario
for the Preisdent's talking points as any hypothetical dis-
cussion with Mrs. Thatcher would inevitably be construed
as a commitment. For your front office information only, my
thought is to announce our willingness to participate in
the Paris Club discussions on a 1982 debt rescheduling for
Poland in the event of the release of Walesa and a number of
other prisoners. This particular step is squarely in the
U.S. interest as it avoids external accusations that a
politically-inspired USG decision (not to move on sanctions)
threw Poland into default. There is a good chance Poland
will go into default anyway this year, but it is crucial that
the Soviets, Polish authorities and European allies not be
able to point at the USG as having caused the default. They
would use this as an excuse to "circle the wagons," strike
their own rescheduling deal and cut out U.S. commercial banks
and the USG from any further payments of principal or interest.
Such a reciprocal gesture on our part would be warmly received
by the Polish authorities and the allies and initiate the
"carrot approach" to furthering progress toward reconciliation
described by the President in Friday's meeting. I would be
interested in discussing this further as such an "in principle"
decision on our side could actually induce the release of
Walesa if communicated through discreet channels out to the Poles
and be a victory for the President.
lits
moyes
clis
SECRET
Review June 22, 1988
to
Cupe
SECRET
System PoPrionsky
64
THE WHITE HOUSE
WASHINGTON
PRES. STATEMENTS
UNCLASSIFIED
(Pocish
June 22, 1982
sanctions)
MEMORANDUM FOR THE VICE PRESIDENT
THE SECRETARY OF STATE
THE SECRETARY OF THE TREASURY
THE SECRETARY OF DEFENSE
THE ATTORNEY GENERAL
THE SECRETARY OF COMMERCE
THE SECRETARY OF ENERGY
THE DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
THE DIRECTOR OF CENTRAL INTELLIGENCE
THE UNITED STATES REPRESENTATIVE TO THE UNITED
NATIONS
THE UNITED STATES TRADE REPRESENTATIVE
THE CHAIRMAN, JOINT CHIEFS OF STAFF
SUBJECT:
December 30, 1981 Sanctions on Oil and
Gas Equipment Exports to the Soviet Union
The President has approved the attached National Security
Decision Directive on the December 30, 1981 sanctions on
oil and gas equipment exports to the Soviet Union.
FOR THE PRESIDENT:
William Clark
William P. Clark
Attachment NSDD-41
UNCLASSIFIED
SYSTEM II
UNCLASSIFIED
90413
THE WHITE HOUSE
WASHINGTON
June 22, 1982
NATIONAL SECURITY DECISION
DIRECTIVE NUMBER 41
DECEMBER 30, 1981 SANCTIONS ON OIL AND GAS
EQUIPMENT EXPORTS TO THE SOVIET UNION
I have reviewed the sanctions on the export of oil and gas
equipment to the Soviet Union imposed on December 30, 1981,
and have decided to extend these sanctions through adoption
of new regulations to include equipment produced by subsidi-
aries of U.S. companies abroad as well as equipment produced
abroad under licenses issued by U.S. companies.
The objective of the United States in imposing the sanctions
has been and continues to be to advance reconciliation in
Poland. Since December 30, 1981, little has changed concern-
ing the situation in Poland; there has been no movement that
would enable us to undertake positive reciprocal measures.
The decision taken will, we believe, advance our objective of
reconciliation in Poland.
Ronald Reagan
UNCLASSIFIED
4767/Comment
Southons
general
MEMORANDUM
66
NATIONAL SECURITY COUNCIL
CONFIDENTIAL
July 8, 1982
INFORMATION
MEMORANDUM FOR ROGER W. ROBINSON
FROM:
RICHARD PIPES if
SUBJECT:
Sanctions
You should be extremely careful not to say anything publicly
that may be construed in Moscow and Warsaw as a weakening
of our resolve on sanctions. Your RFE interview almost sounds
(and will probably be interpreted in this light over there) as
if we were looking to Russia and Poland to give us a face-
saving device with which to get rid of the sanctions that have
caused us trouble with the Allies.
(C)
CC: Norman Bailey
Robert Sims
DECLASSIFIED
CONFIDENTIAL
NLRR F06-114/10#11328
Review July 8, 1988.
BY Cr NARA DATE 1/2/08
CONE IDENT AL
NATIONAL SECURITY COUNCIL
MESSAGE CENTER
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CONF IDENTIAL SECTION 01 OF 02 LONDON 14904
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NODIS
E.O. 12065: XGDS-1 7/9/12 (STREATOR, E.J.) OR-M
TAGS: ETRD, UK
SUBJECT: US/EUROPEAN TRADE RELATIONS: HMG CONCERN MOUNTS
OVER SOVIET PIPELINE SANCTIDNS
1. CONFIDENTIAL ENTIRE TEXT.
N
2. SUMMARY:
0
HMG OFFICIALS ARE CONCERNED OVER APPARENT U.S. "MISUNDER-
D
STANDING" OF THE IMPACT OF SANCTIONS ON JOHN BROWN LTD.,
AND SEEM TAKEN ABACK BY THE PRESIDENT' S RECENT LETTER TO
PM THATCHER. STRESSING THAT THE FIRM IS NOW LIVING ON
BORROWED TIME, WITH UP TO 2, 000 JOBS AND A $200 MILLION
S
CONTRACT AT STAKE, THEY IMPLIED FURTHER UK GOVERNMENT
ACTION "SOONER RATHER THAN LATER." CHARACTERIZZNG THE
U.S. DECISION AS "INTENSELY DEPRESSING" AND OUR EXTENDED
EXTRATERRITORIALITY DISCUSSIONS AS "A DIALOGUE OF THE
DEAF, THEY WARNED OF A SPILL OVER INTO OTHER AREAS OF OUR
BILATERAL RELATIONSHIP, SUCH AS COCOM.
END SUMMARY.
N
0
3. ECONCOUNS AND EMBOFF MET JULY 6 WITH DEPARTMENT OF
TRADE (DOT) UNDER SECRETARY RUSSELL SUNDERLAND (NORTH
D
AMERICA AND EXTRATERRITORIALITY ISSUES) AND ASSISTANT
SECRETARY JOHN POWNALL (EAST/WEST TRADE) TO REVIEW HMG
THINKING ON OUR EXPANDED SOVIET SANCTIONS. SUNDERLAND
S
REFERRED TO A SERIOUS MISUNDERSTANDING BETWEEN THE US AND
THE UK ON THE IMPACT OF US SANCTIONS ON JOHN BROWN
ENGINEERING LTD. AND QUESTIONED HOW SUCH A SITUATION COULD
HAVE ARISEN. HE SAID HMG HAD CAREFULLY REVIEWED THE
COMPANY' S SITUATION AND REACHED CERTAIN CONCLUSIONS WHICH
BECAME THE BASIS FOR REPRESENTATIONS FROM THE PRIME
MINISTER TO THE PRESIDENT. HE EXPRESSED CONCERN THAT THE
U.S. SOMEHOW HAD CONCLUDED THE IMPACT WAS MANAGEABLE
AND SEEMED PARTICULARLY OFFENDED THAT HMG' S WORD WAS NOT
ACCEPTED. HE REVIEWED THE CORRESPONDENCE BETWEEN THE
PRESIDENT AND PM THATCHER, ABOUT WHICH EMBASSY IS AWARE
BUT HAS NOT SEEN. HE SAID THAT HMG WAS TAKEN ABACK BY THE
PRESIDENT'S LETTER OF ABQUT JULY 5. HE CHARACTERIZED THE
LETTER AS ACKNOWLEDGING US/UK DIFFERENCES OF VIEWS
REGARDING THE IMPACT OF SANCTIONS ON JOHN BROWN WHILE
OFFERING TO PROVIDE HMG WITH DATA SUPPORTING OUR POSITION.
4. SUNDERLAND SAID THAT JOHN BROWN WAS TRULY " ON THE
HOOK, THAT THE IMPACT WAS SERIOUS, AND THAT THE COMPANY
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WAS IN AN EXPOSED POSITION. HE NOTED THAT "ESCAPE FOR
JOHN BROWN WAS NEITHER CERTAIN NOR SIMPLE," BUT THAT
COMPANY REPRESENTATIVES COULD NOT OVERDRAMATIZE THEIR
N
SITUATION SINCE THEIR STOCK IS PUBLICLY QUOTED. WE
0
EXPRESSED UNDERSTANDING AND SYMPATHY FOR JOHN BROWN' S
POSITION, BUT NOTED THAT US COMPANIES SUCH AS CATERPILLAR,
D
WHICH ALSO FACED FINANCIAL DIFFICULTIES, ARE MAKING
SIMILAR SACRIFICES. POWNALL RESPONDED THAT "WE DON'
MIND YOU DRIVING YOUR COMPANIES OUT OF BUSINESS, BUT DO
1
you don't
MIND WHEN YOU DO OURS. "
S
say! !
5. REGARDING THE CURRENT POSITION OF JOHN BROWN
ENGINEERING LTD., POWNALL SAID THAT JULY 2 WAS THE FIRST
SHIPMENT DATE FOR TURBINES TO THE SOVIETS. CONSEQUENTLY,
THE COMPANY IS LIVING " ON BORROWED TIME" AWAITING ONLY
THE TWO FINAL CONTRACTUAL REQUIREMENTS FOR SHIPMENT:
N
SOVIET INSPECTION OF THE GOODS; AND NOTIFICATION BY THE
SOVIETS THAT A SHIP IS AVAILABLE FOR FOB DELIVERY. so
0
FAR THE SOVIETS HAVE NOT FOLLOWED UP ON THESE TWO
CONDITIONS, BUT THIS SUSPENDED STATE CAN LAST AT MOST FOR
D
A FEW weeks.
6. SUNDERLAND STRESSED THAT THESE CIRCUMSTANCES MAKE THE
S
JOHN BROWN CONTRACT A MORE PRESSING PROBLEM FOR HMG THAN
DO THE AEG AND NUOVO PIGNONE CONTRACTS FOR FRG AND
ITALIAN AUTHORITIES. ACTUAL DELIVERY DATES FOR THESE
FIRMS ARE FURTHER IN THE FUTURE. THE DEPARTMENT OF TRADE
HAS EXAMINED JOHN BROWN'S CONTRACTS WITH THE SOVIETS.
THERE ARE A SERIES OF LATE DELIVERY PENALTIES AFTER WHICH
NON-SHIPMENT WILL INVOKE FURTHER LIABILITIES FOR
N
NON-FULFILMENT. THE SOVIETS THEN HAVE THE RIGHT TO CANCEL
AND SUE FOR DAMAGES. WHILE THE SOVIETS HAVE NOT SERVED
0
NOTICE THAT THEY WILL TAKE SUCH A STEP, THERE IS REASON
D
TO BELIEVE THEY WILL. ALTERNATIVELY, SUNDERLAND EXPECTS
THAT THE SOVIETS WILL PUT PRESSURE ON EC COMPANIES TO
PROPOSE AN ALTERNATE SOLUTION, JUST SHORT OF INVOKING THE
PENALTY. (SEPTEL WILL REPORT ON MEETING WITH JOHN BROWN
S
EXECUTIVES AND THEIR JULY 2 MEETING WITH THE SOVIETS.) ,
7. SUNDERLAND WAS ELUSIVE ON STEPS THAT HMG MAY TAKE NEXT
UNDER THE PROTECTION OF TRADING INTERESTS ACT (PTI), INVOKED
ON JUNE 30 TO BLOCK OUR JUNE 18 EXPORT RESTRICTIONS. WHILE
BT
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TO SECSTATE WASHDC IMMEDIATE 2141
D
C O N-F IDENTIAL SECTION 02 OF 02 LONDON 14904
S
NODIS
THE PTI CAN REQUIRE AFFECTED FIRMS TO NOTIFY THE
DEPARTMENT OF TRADE AND PERMITS THE SECRETARY OF STATE
FOR TRADE TO PROHIBIT UK COMPANIES (INCLUDING SUBSIDIARIES
OF US FIRMS) FROM COMPLYING WITH US SANCTIONS, DOT
OFFICIALS ADMITTED THAT THEY DO NOT HAVE THE POWER TO
ORDER A FIRM TO CONSUMMATE AN EXPORT.
N
BRITISH LAW WOULD NOT PREVENT JOHN
BRROWN FROM MEETING CONTRACTED OBLIGATIONS WITH THE SOVIETS,
0
BLOCKING USE OF A FORCE MAJEURE DEFENSE IN UK COURTS.
D
POWNALL NOTED THAT US FIRMS, IN CONTRAST, COULD READILY
CITE THE EXPORT ADMINISTRATION ACT AS A LEGAL DEFENSE FOR
BREACH OF CONTRACT.
S
8. POWNALL STRESSED THAT IF JOHN BROWN ENGINEERING LTD.
LOSES THE SOVIET CONTRACT AND IS SQUEEZED TO THE LIMIT, IT
ALMOST CERTAINLY WILL HAVE TO CLOSE. EMPLOYMENT LOSSES BY
THE FIRM WOULD TOTAL APPROXIMATELY 1, 700 PEOPLE, IF JOHN
BROWN COULD SHIP THE PRE - DECEMBER 31, 1981 ROTORS NOW
IN STOCK, THE JOB LOSS WOULD BE SMALLER, PERHAPS 250. THE
IMPACT ON SUB-CONTRACTORS AND OTHER FIRMS DEALING WITH
N
JOHN BROWN WOULD PERHAPS BE 200-300 JOBS, IN TURN DEPENDING
0
ON THE FINANCIAL POSITION OF THESE OUTSIDE FIRMS.
D
9. ON THE IMPACT OF OUR ACTION ON UK SUBSIDIARIES OF US
FIRMS AND UK LICENSEES, THE DEPARTMENT OF TRADE PRESENTLY
IS CONDUCTING A SURVEY AND HAS NO DATA YET. SINCE
S
INVOCATION OF THE PTI, FIRMS ONLY NOW ARE REPORTING THEIR
POSITION TO THE DEPARTMENT OF TRADE. SUNDERLAND GUESSED
THAT, AT A MINIMUM, OUR DECISION MAY AFFECT CONTRACTS
WORTH SEVERAL TENS OF MILLIONS OF POUNDS. AGAIN, SOME OF
THESE SUBSIDIARIES AND LICENSEE HOLDERS MAY FACE LIQUIDA-
TION. (NOTE: THIS EMBASSY ALSO IS UNAWARE OF THE IMPACT
ON US-CONTROLLED SUBSIDIARIES. CALLS FROM SUBSIDIARIES
AND UK SOLICITORS INDICATE CONTRACTS IN VARIOUS STAGES,
RANGING FROM ONE TO FOUR HUNDRED AND FIFTY MILLION DOLLARS. )
10. SUNDERLAND CANDIDLY EXPRESSED HMG' S BELIEF THAT IT
WAS MISLED IN THIS ISSUE, PERHAPS BECAUSE THEY DID NOT
BELIEVE EUROPEAN CONCERNS WOULD BE DISREGARDED AND THAT
SANCTIONS WOULD BE EXTENDED IN THE SAME OIL AND GAS AREAS
(READ AS OPPOSED TO A GRAIN EMBARGO).
11. HE SAID HAD THE BRITISH GOVERNMENT A CLEARER IDEA IN
EARLY JANUARY OF OUR LATER SANCTIONS, THE IMMEDIATE
DECISIONS OF HMG AND JOHN BROWN ENGINEERING LTD. MIGHT
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HAVE BEEN DIFFERENT -- THOUGH UK OBJECTION NO LESS
VIGOROUS. SUNDERLAND SAID HMG FIRMLY BELIEVED THE
PROSPECT FOR SOMERESOLUTIDN OF THIS DISAGREEMENT HAD
N
SEEMED LIKELY WITH ADVANCES ON RESTRICTING SOVIET CREDITS
0
AND THE DISCUSSIONS AT VERSAILLES. HMG FULLY EXPECTED
SOME QUID PRO QUO FROM THE US FOR THIS PROGRESS. HE SAID
D
THE NEW SANCTIONS NOW HAVE LEFT HMG WITH NO ROOM FOR
MANEUVER.
I
S
12. CHARACTERIZING US ACTIONS AS "INTENSELY DEPRESSING, "
HE NOTED THAT THE CONSIDERABLE EFFORTS OF HIGH LEVEL HMG
OFFICIALS IN BILATERAL DISCUSSIONS WITH THE USG ON
EXTRATERRITORIALITY OVER THE LAST YEAR APPEAR NOW "TO
HAVE BEEN NDTHING MORE THAN A DIALOGUE OF THE DEAF. HE
SAID HMG FINDS US CONTROLS PARTICULARLY OBJECTIONABLE IN
TWO AREAS: THE RETROACTIVE ELEMENT DF THE REGULATIONS
N
AS THEY RELATE TO EXISTING CONTRACTS AND LICENSING
AGREEMENTS; AND THE INTERFERENCE WITH UK COMPANIES WHICH
0
ARE SUBSIDIARIES OF US FIRMS. HE STRESSED THAT OUR
BILATERAL DISAGREEMENT NOW IS ON A VERY FAST TIME TRACK
D
AND "FURTHER HMG ACTIONS WILL HAVE TO OCCUR SODNER RATHER
THAN LATER.' POWNALL NOTED THAT THIS DISPUTE CANNOT BUT
SPILL over INTO OTHER ASPECTS OF OUR RELATIONSHIP,
S
PARTICULARLY IF JOHN BROWN GOES UNDER, HE CITED, AS BUT
ONE EXAMPLE, THE UPCOMING COCOM REVIEW WHICH "SOME
EUROPEANS EASILY COULD MUDDLE UP. LOUIS
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NODIS
E. O. 12065: GDS 7/9/88 (STREATOR, E.J.) OR-M
TAGS: EEWT, UK, UR
SUBJECT: US/EUROPEAN TRADE RELATIONS: MEETING WITH JOHN
BROWN REPRESENTATIVES
N
1.
e
ENTIRE TEXT.
0
2. SUMMARY:
JOHN BROWN'S CHAIRMAN CLAIMS THAT BROADENED US SANCTIONS
WILL FOROE THE ENGINEERING DIVISION TO SHUT DOWN WITH THE
LOSS OF 1700 JOBS AND 104 MILLION POUNDS STERLING IN
SALES. HE ASSERTED THAT US ACTIONS AND BRITISH INVOCATION
S
OF THE PROTECTION OF TRADING INTERESTS (PTI) ACT HAVE
PLACED JOHN BROWN IN AN UNTENABLE POSITION WITH ITS
FUTURE IN JEOPARDY WHETHER IT OBEYS US OR BRITISH LAW.
JOHN BROWN EXPECTS THAT THE SOVIETS WILL COLLECT
SUBSTANTIAL HARD CURRENCY RECEIPTS IN PERFORMANCE BONDS
POSTED BY US AND EUROPEAN BANKS FOLLOWING CONTRACT
DEFAULTS, THE SOVIETS HAVE GIVEN THE FIRM A TEMPORARY
N
EXTENSION ON THE JULY 2 DELIVERY DATE FOR SIX TURBINES
0
ALREADY MANUFACTURED AND READY FOR SHIPMENT.
END SUMMARY'
3. ECONCOUNS AND CG EDINBURGH MET ON JULY 7 WITH SIR JOHN
MAYHEW-SANDERS, CHAIRMAN, JOHN BROWN AND CO. LTD., TO
REVIEW JOHN BROWN' S SITUATION IN LIGHT OF JUNE 18
S
DECISION TO BROADEN RESTRICTIONS ON SALE OF OIL AND GAS
EQUIPMENT TO USSR.
4. MAYHEW-SANDERS SAID HE WAS FAMILIAR WITH EXCHANGE OF
CORRESPONDENCE BETWEEN PRESIDENT AND PRIME MINISTER AND
HAD, IN FACT, SUPPLIED DATA ON POTENTIAL JOB LOSSES AND
ECONOMIC IMPACT TO PM' S OFFICE. IF ANYTHING, HE BELIEVED
THE PM WAS OVERLY CAUTIOUS IN DESCRIBING JOHN BROWN'S
SITUATION, HE DID NDT UNDERSTAND HOW ALLEGED DIFFERENCES
BETWEEN US AND UK OVER THE IMPACT OF US ACTIONS ON THE
FIRM COULD HAVE ARISEN.
5. HE DESCRIBED JOHN BROWN' S SITUATION AS "VERY SERIOUS.'
IF THE SANCTIONS ARE NOT LIFTED, THERE IS A HIGH PROBABI-
LITY THAT JOHN BROWN ENGINEERING IN CLYDEBANK (NEAR
GLASGOW) WOULD CLOSE WITH A LOSS OF 1700 JOBS AND 104
MILLION POUNDS STERLING IN TURBINE ORDERS WITH THE USSR,
MAYHEW-SANDERS FEARED THAT EVEN THOUGH JOHN BROWN HAS TWO
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YEARS' OF ORDERS ON THE BOOKS, THEIR CUSTOMERS WOULD TURN
TO OTHER SOURCES IF THE SOVIET SALE COLLAPSES BECAUSE OF
UNCERTAINTY ABOUT JOHN BROWN' S RELIABILITY AS A SUPPLIER
N
AND ITS DEPENDENCY ON US COMPONENTS. (THE ECONOMIST FOR
0
JULY 10 REPORTS THAT THE FIRM HAS OUTSTANDING ORDERS IN
ABU DHABI, OMAN, AND PAPUA NEW GUINEA.)
D
6. HE SAID US ACTION AND THE SUBSEQUENT BRITISH DECISION
TO INVOKE THE PTI PUT JOHN BROWN IN AN UNTENABLE POSITION
S
IF IT ABIDES BY US EXPORT CONTROL REGULATIONS AND DOES NOT
EXPORT THE TURBINES TO THE USSR, IT WILL LOSE SUBSTANTIAL
SALES AND FUTURE CUSTOMERS, AND BECOME LIABLE FOR
SIZEABLE PENALTIES FOR NON-COMPLIANCE UNDER THE CONTRACT.
THE SOVIETS COULD ALSO CALL IN PERFORMANCE BONDS HELD BY
US AND EUROOEAN BANKS WHICH, IN EEFECT, WOULD MEAN THAT
THE SOVIETS GET THE HARD CURRENCY, IF NOT THE EQUIPMENT.
N
ON THE OTHER HAND, IF HMG ISSUES AN ORDER UNDER THE PTI
WHICH PROHIBITS JOHN BBOWN FROM COMPLYING WITH US EXPORT
0
CONTROLS, THE US DEPARTMENT OF COMMERCE WILL BLACKLIST
JOHN BROWN, AND THE ENGINEERING DIVISION WILL GO OUT OF
D
BUSINESS SINCE IT RELIES EXCLUSIVELY ON GE FOR MAJOR
TURBINE PARTS.
S
7. MAYHEW-SANDERS THOUGHT THAT JOHN BROWN HAD A GOOD LEGAL
CASE AND MIGHT WIN IN US COURTS ON THE RETROACTIVE NATURE
OF US SANCTIONS, BUT LEGAL RELIEF PROBABLY WOULD NOT COME
SOON ENOUGH TQ SAVE THE ENGINEERING DIVISION,
8. HE PREDICTED THAT THE POLITICAL FALLOUT FROM THE
BROADENED US SANCTIONS COULD BE SUBSTANTIAL, PARTICULARLY
N
IN SCOTLAND WITH ITS HIGH UNEMPLOYMENT.
9' WE ASKED MAYHEW-SANDERS WHETHER JOHN BROWN HAD PAID
O
ANY PENALTIES YET FOR NON-DELIVERY, SINCE JULY 2,
REPORTEDLY THE OUTSIDE DATE, HAD COME AND PASSED. HE SAID
IN STRICTEST CONFIDENCE THAT ON HIS TRIP LAST week TO THE
USSR THE SOVIETS HAD GIVEN JOHN BROWN AN INDEFINITE
EXTENSION, BUT THAT WAS FOR A PERIOD OF DAYS, NOT weeks.
S
10. COMMENT: THROUGHOUT THE DISCUSSION, MAYHEW-SANDERS
BT
N
0
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CONF IDENTIAL
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DE RUEHLD #4919/02 1911036
R 101032Z JUL 82
FM AMEMBASSY LONDON
TO SECSTATE WASHDC 2156
CONFIDENTIAL SECTION 02 OF 02 LONDON 14919
MAINTAINED A DEMEANOR OF CONTROLLED RAGE, HE SEEMED
PARTICULAALY UPSET ABOUT THE ALLEGED MISUNDERSTANDING
BETWEEN THE TWO GOVERNMENTS OVER THE IMPACT OF US SANCTIONS
ON HIS FIRM, WE DO NOT KNOW HIM PERSONALLY, BUT BELIEVE
HE SPOKE FRANKLY AND HONESTLY ABOUT JOHN BROWN'S POSITION.
END CCMMENT. LOUIS
BT
CONFIDENTIAL CODEWORD