President Reagan's decision to bar European companies from using American-developed technology in equipment they sell to the Soviet Union for the mammoth pipeline project from Siberia to Western Europe has touched off a bitter response from America's Western allies. It may even have made the economic summit process essentially meaningless for the future.
At his press conference Wednesday night, Reagan conceded that his decision to extend the ban to the sale of equipment to subsidiaries of American companies operating abroad, and to European companies under license to General Electric, may be attacked on legal grounds.
Reagan's friendliest ally in Europe, British Prime Minister Margaret Thatcher, has already deputized her secretary of state for trade, Lord Cockfield, to say that Reagan's decision was "damaging" to British commercial interests and was not only "unacceptable" to the British government, but in the eyes of international law.
Thatcher noted in a speech to the House of Commons that the decision was harmful to "American interests because so many people will say there is no point in making a contract to secure materials, machinery and equipment from the United States if at any time they can just cancel that contract."
Reagan's ill-considered pipeline order--defended by Reagan as a matter of "principle"--was a key element in the departure of Secretary of State Alexander M. Haig Jr. and the prospective resignation of Assistant Secretary for Business and Economic Affairs Robert D. Hormats.
Essentially, in its single-minded pursuit of the goal of weakening the Soviet Union, the Reagan administration is seeking to apply American laws in an "extraterritorial" manner. But other sovereign nations, as Britain has already demonstrated, will not easily suffer the indignity of having Washington tell their companies what they can sell, and under what conditions.
Moreover, Reagan's decision makes a mockery of American complaints that other nations--Canada for example--discriminate against American companies in their jurisdictions. We insist on "national" treatment of U.S. companies by other countries, that is, that U.S.-owned companies be treated exactly as they treat their own companies. In Canada, for example, we argue that Ottawa's energy policy gives tax concessions to Canadian-owned companies that it doesn't grant American-owned companies.
In the pipeline case, the United States is presuming to tell Great Britain, France, West Germany and Italy that their own companies, making General Electric gas turbine blades on a licensing arrangement, are not subject to their national laws, but to U.S. sanctions if they go ahead and deliver on contracts they have with the Russians.
We can't have it both ways.
French President Francois Mitterrand, who feels he was duped by Reagan at the Versailles summit into believing that such an extension of the pipeline equipment ban--already in force for American firms--would not take place, said publicly last week that Reagan had exhibited "a grave lack of solidarity" with his allies. What he said privately probably could not be printed in a family newspaper.
As for the summits, the French president voiced a general view taking hold in Europe: "We can't just take these meetings and turn them into a means of propaganda for each of the participants. If so, it's not worth continuing them." Helmut Schmidt bitterly observed that for him, the most important line in the summit declaration was one that recognized that each country had to be "sensitive to the effects of its policies on others." Schmidt implied that it had taken Reagan only a week after Versailles to scrap that pledge.
In rebuttal, White House officials point out that both Mitterrand and Schmidt had said immediately after Versailles that the agreement to "limit" export credits to the Soviet bloc wouldn't essentially alter their lending policies. Although Haig assured Reagan that the Mitterrand/Schmidt statements were designed for home consumption, Reagan was persuaded that a crackdown on the pipeline issue would show his commitment to play "hard ball."
None is more sensitive to the question of extra-territoriality than the Canadians. Some 48 percent of all Canadian industry is foreign-owned, a level that Canada would not like to see increased. There have been countless cases in the past in which the United States has attempted to extend American law to Canadian companies that are partially American-owned--for example, those that chose to trade with Cuba or Vietnam, which was not in violation of Canadian policies.
In an interview here, Canadian Ambassador Allan Gottlieb, in the midst of trying to cool simmering Canadian-American trade issues on a number of fronts, suggested gently that "any effort to designate subsidiary companies as flag-carriers for the foreign policy of the home state can have far-flung importance."
The Europeans are just beginning to appreciate the potential booby-traps of licensing of American technological know-how, given an American penchant to push "extra-territoriality." Hormats is known to believe that it will be costly to American business, because foreigners will now be skittish about making licensing deals.
The most immediate cost of the pipeline decision, if carried out, will be in lost sales by John Brown & Co. of Great Britain, AEG of West Germany, the state-owned Nuovo Pignone of Italy, and Alsthom-Atlantique of France. Worst of all, at a time of deep recession in Europe, the decision will cost tens of thousands of jobs.
Like key French and German officials and most businessmen, Gottlieb is not convinced that economic sanctions can effectively be deployed against the Soviet Union. "We have to treat the Soviet Union as a full-fledged grown-up partner, and put trade on a strictly commercial basis," he says. "And the Western powers have to work together" on a policy restricting exports of strategic goods.
The now dominant view in the Reagan administration is that it was so important to block the Soviet gas pipeline that disrupting the Atlantic alliance was an unfortunate but acceptable trade-off. Reagan said that the Soviet Union "is very hard-pressed financially and economically today," and that it makes good sense to block the Russians from getting $10 billion annually in hard-cash revenue from the sale of gas.
Moreover, the argument of the Reagan hawks is that by 1990, with the gas pipeline in place, France and West Germany would be getting 30 percent of their natural gas from the Russians--and they believe that is too much on an absolute basis. If Russia and Algeria are taken together, France would be getting 60 percent of its gas from those two sources, providing the kind of dependence that Washington thinks unhealthy.
Suppose the Soviets wanted to use its gas supply as political leverage? The president said cryptically at his press conference that "all the valves are on the Soviet side of the border." It's an argument that cannot totally be dismissed. A French economist unconnected with the Mitterrand government concedes: "The West needs to be sure that the costs to the Soviets of cutting off the gas would be be higher than the benefits."
How about the future of summits? Gottlieb, who was the Canadian "sherpa" for the Ottawa summit in 1981, notes reflectively that there had been a long period of continuity of problems and personnel at the summits until two years ago--shattered by the coming into power of both right and left-wing governments.
"Now," he says, "it's not as easy to make platitudes that people will buy." Nonetheless, despite Mitterrand's and Schmidt's unhappiness, like many experts, Gottlieb believes that the key leaders will find it more unacceptable not to have summits than to go through with them. The danger is that after episodes like the one revolving about the pipeline, the public will begin to consider them a joke.