Dresser Industries' vice president for finance tells what the American-French skirmish over sanctions against the Soviet pipeline has done to his company, and Sen. Quayle looks at what the sanctions are doing to American credibility.
Our Western European allies are angry. More important, they're confused.
They're confused and angry because they don't understand or accept the administration's rationale for imposing further sanctions against the Soviets' Yamal gas pipeline. In June, President Reagan broadened his original sanctions, imposed in December 1981, to include U.S. machinery manufactured by foreign licensees. Yet, events this past week, involving the shipment of embargoed compressors by Dresser France, show us our allies will defy these sanctions.
The December decision was made in response to the imposition of martial law on the people of Poland. And, according to the administration, the continuing repression of the Polish people is the official reason for the new sanctions.
During my July visit to five European capitals, U.S. embassy officials gave me four different reasons for the decision. The explanations ranged from a potential European energy dependency on the Soviets, to the Europeans' excessive subsidization of credits for the pipeline, to a general policy of economic warfare, to the sanctions' being a further reaction to continuing Polish oppression. If I am getting these conflicting views, what kind of signals are we sending our allies?
Our allies simply don't believe Poland is the reason behind the sanctions. Frankly, neither do a number of U.S. officials. It's no wonder the confusion abroad continues unabated.
Consider the European thinking. They know the December decision was tied to the imposition of martial law, yet they also know there was no new event in Poland to trigger the added sanctions in June. Since they have questioned linkage from the beginning, the June decision only further erodes their confidence in the administration's credibility and consistency.
While visiting with European officials, I was asked several revealing questions: If Lech Walesa is released and Solidarity permitted to function freely, would the president lift the sanctions and support the project? If the repression is later reimposed, what then? What, in fact, is the administration's policy?
It's no wonder our allies are confused. And if Poland is the basis for our policy, then it's not surprising our allies accuse us of hypocrisy for selling grain to the Soviets. From their perspective, if Poland is the issue, withholding grain should have as much impact on the Soviets' action in Poland and elsewhere as the withholding of pipeline equipment.
Let me be clear: the president's decision to impose further sanctions is right. But the reasoning made public is faulty and confusing. The case for the embargo should not be built on the Polish issue; rather, it should be carefully constructed on the premise that we fundamentally oppose subsidized trade with the East.
So far, the administration has taken tentative steps toward pursuing such a policy. At the Versailles Summit, President Reagan attempted to get an overall agreement on the elimination of subsidized credits in East-West trade. This followed the pre-Versailles mission of Undersecretary of State James Buckley, which produced very little in the way of concrete agreements on credits.
Unfortunately, Versailles produced only fuzzy language about exercising "commercial prudence" in granting subsidized crefind thdits to the Soviet Union. Even this vague communiqu,e was quickly repudiated by French President Francois Mitterrand and West German Chancellor Helmut Schmidt. Instead, they rushed headlong in the exact opposite direction.
The credits the Soviets are now receiving for the construction of the pipeline make no sense at all. The typical loans -- guaranteed by Western governments -- are at 7.8 percent interest. This is 4 to 6 percent below normal commercial lending rates, and substantially below the very reasonable 12.5 percent President Reagan called for at the summit.
Credits at these rates are nothing less than the type normally given to a developing Third World country. If the West were not subsidizing the pipeline to the tune of $5 billion to $10 billion in cheap credits, the Soviets would have to finance the whole project -- a low estimate is $15 billion -- at market rates. Forced to do this, they would have to divert substantial hard currency and technical resources that could otherwise be used in their continuing military buildup.
As an advocate of free trade, I have no objection to East-West trade involving "cash on the barrelhead," as is the case with our grain sales to the Soviets. Even unsubsidized credits at prevailing commercial rates are acceptable. But deals that bail out faltering communist economies with "sweetheart" financial arrangements are simply wrong.
The president should not consider lifting the sanctions until the Europeans agree to a binding long-term accord encompassing two points. First, there must be no subsidization of financial credits on any future sales to the East. Second, there must be strict adherence and enforcement of the restrictions placed on the exportation of high-technology goods to the East. The Russians can, and do, convert much of this information and material to military use.
Such a consensus could rejuvenate the Western alliance, unravel the confusion about U.S. foreign trade policy with the Soviets, and quell the increasing calls from both sides of the Atlantic for protectionist measures.
Perhaps the events of the past week will force the administration to recognize the reality of the situation. President Reagan has the necessary leadership ability to change the present collision course we are on with our allies.