Trouble in the Pipeline

By Frederick Painton

The U.S. and its allies are at odds over how to deal with Soviets

It is more than a debate, deeper than a commercial dispute over narrow national interests. The public row that pits the U.S. against its major allies over the projected Euro-Soviet pipeline has exposed a gaping fissure in an issue central to the Atlantic Alliance's very existence: how to deal with the Soviet Union. Meeting in Brussels last week, the leaders of the ten-nation European Community sternly warned President Reagan of the "adverse consequences" of his move to block or at least delay the planned $10 billion pipeline that is supposed to deliver natural gas 3,500 miles from Siberia to the heart of Western Europe starting in 1984.

Reverting to his old hard-line approach, Reagan had extended the existing ban on sales of American products for the pipeline to include equipment manufactured both by U.S. subsidiaries abroad and by foreign firms operating under U.S. licensing agreements. So angered were some European leaders that the first draft of the Brussels summit's communique, later toned down, was described by a senior British diplomat as a "virtual European declaration of economic war against the U.S."

Taken amid mounting transatlantic trade tensions over steel, agriculture and textiles, Reagan's pipeline decision confirmed suspicions within the Community that Washington, in pursuit of its goals, was riding roughshod over Western Europe's economies. Rightly or wrongly, Western European leaders had been led by Secretary of State Alexander Haig and other officials to believe that the U.S. was willing to soften its opposition to the pipeline in the interest of harmony, and specifically in exchange for a European agreement--feeble though it was--to tighten credit to the Soviet bloc.

French President Francois Mitterrand took the lead last week in urging his European partners to consider retaliatory measures against the U.S. He declared: "We cannot be content to turn [summit meetings] into just so much internal propaganda for each of the participants. In that case, they should not be held at all." The French President was threatening by implication to boycott next year's summit, to be held in the U.S. Britain's Prime Minister Margaret Thatcher took one look at the original Brussels text and told her aides, "I cannot put my signature to this declaration, which goes beyond what is acceptable in publicly criticizing our American ally." Backed by West

German Chancellor Helmut Schmidt, Thatcher succeeded in talking her European colleagues into a milder line that called for an "effective dialogue" with the U.S.

Despite their attempts to moderate the public spat with Washington, Thatcher and Schmidt still hoped to change U.S. policy. The British Prime Minister instructed Secretary for Trade Lord Cockfield to give notice that Britain is prepared to defy the Reagan sanctions in order to enable British companies to complete $200 million worth of Soviet orders for the huge natural-gas project. Said Thatcher to the Commons: "The question is whether one very powerful nation can prevent existing contracts being fulfilled. I think it is wrong to do that." In the same spirit, Schmidt announced that "like our European partners, we shall stick to the natural-gas pipeline deal because it serves the necessary diversification of our energy supply."

It will also save thousands of jobs at a time when unemployment in the Community has reached a postwar record of an estimated 9.5%. Both Mitterrand and Schmidt have repeatedly explained to Washington that Western Europe's defense capability is inextricably linked to its economic well-being and social stability. That view so far has failed to sway the White House, where aides blamed Haig for having misled the Western Europeans into thinking that Reagan had agreed to soften his opposition to the pipeline. In fact, when Reagan left Versailles, unhap py over the soft European stand on credit to the Soviet bloc, he still had not made up his mind whether to toughen the anti-pipeline sanctions.

What triggered Reagan's hard-line decision, according to White House aides, was a postsummit statement in an interview in which France's Mitterrand echoed European-wide opposition to waging any kind of "economic war" against the Soviets. To an irritated Reagan, it suddenly seemed that any semblance of an understanding at Versailles had been downgraded. Moreover, the Polish government has not lifted martial law, which was the original cause for the sanctions. The U.S. has never clearly spelled out what had to happen in Poland before the sanctions could be lifted. Said one State Department official:

"The discussion never even got that far." With Haig out of the picture, the Administration was beginning to believe that the pipeIine could even be stopped. Said Lawrence Brady, Assistant Secretary of Commerce: "Certainly we can delay the pipeline, and we may bring the Europeans round to stopping it altogether."

The seemingly quixotic campaign by the Reagan Administration against the pipeline is based on the view that the Soviet Union's economic vulnerability should be exploited. At Versailles, Reagan had reportedly told his partners: "If we push the Soviets, they will collapse. When will we get another opportunity like this in our lifetime?" Even observers who don't for a minute believe the Soviet Union would actually collapse think that its behavior could be influenced: that economic pressure can force a reduction in Soviet military spending, diminish aid to Cuba and Viet Nam and even, perhaps, bring about a measure of internal reform in the Communist system. Reagan's principal aim in attacking the pipeline agreement is to prevent Moscow from benefiting from a flow of hard currency (an estimated $8 billion annually by the late 1980s) that could be used for vital imports of Western technology. U.S. officials, however, have been toning down their concern that Western Europe could become overdependent on Soviet energy supplies. Western European leaders point out that even operating at full capacity, the Soviet pipeline will supply only 5% of Western Europe's total energy needs.

Reagan's eagerness to take advantage of the Soviet Union's economic failures rests on assumptions that are widely contested, not only in Western Europe but also by most independent experts in the U.S. They point out that whatever difficulties the Soviet economy may face--including a shortage of hard currency--Moscow will always find the resources for its highest priority, defense. Said Charles

Percy, chairman of the Senate Foreign Relations Committee: "It is difficult to see how this action will do any more than split the NATO alliance and give the Soviet Union an opening to divide us further."

What weakens the Reagan Administration's argument for economic pressure on Moscow is that the U.S. is going ahead with huge sales of grain that are bound to grow even larger as the Soviet Union faces its fourth bad harvest in a row. To help justify this boon for American farmers, the Reagan Administration notes that the grain is paid for in hard cash, thereby imposing real costs on the Soviets. The pipeline equipment, on the other hand, is bought on credit and then earns needed hard currency. To European ears, the argument sounds unconvincing. The U.S. grain still relieves pressure on Soviet agriculture and frees resources for other purposes, including arms production.

By extending the embargo to include U.S. licensees abroad, Washington sought, in the words of one official, to "close a loophole." But, like most economic sanctions, the U.S. curbs on pipeline technology may be easy to circumvent. France's state-owned engineering firm Alsthom Atlantique, for example, could build the rotors itself, though at the risk of an ugly legal tangle with Washington over infringement of its General Electric license. U.S. penalties include blacklisting from the U.S. market, as well as heavy fines and even the arrest in the U.S. of executives from companies that violate the ban.

According to most experts, the Soviets turned to the West largely to obtain cut-rate financing--in other words, a subsidy at the expense of Western European taxpayers--not because they needed foreign know-how. The Soviets already produce sophisticated aircraft turbines, which require expertise in high-temperature technology, aerodynamics and stress analysis. Says Victor de Biasi, editor of Connecticut-based Gas Turbine World magazine: "Anybody who can produce aircraft turbines of as high a caliber as the Soviets do can darn well produce turbines for use on earth." Indeed, French and West German companies last week were discussing the possibility of substituting Soviet turbines for the embargoed U.S. models.

Beyond the financial and strategic considerations, the pipeline has become a matter of national pride for the Soviets. "The net effect of the sanctions may. be rather small on the pipeline," predicts Sovietologist Edward Hewett of the Brookings Institution in Washington, "but in terms of U.S. relations with Western Europe, it could be rather serious." The Reagan Administration may be in for considerably more trouble with its allies than it bargained for. --By Frederick Painton. Reported by Gisela Bolte/Washington and Lawrence Malkin/Paris

With reporting by Gisela Bolte/Washington, Lawrence Malkin/Paris

This file is automatically generated by a robot program, so viewer discretion is required.