The European allies and Japan are preparing to water down their pledges to support President Carter's economic boycott of Iran by introducing exemptions that could undermine the entire effort.
The European Economic Community, which voted unanimously at Luxembourg last month to impose full sanctions by May 17 unless "decisive progress" was made to free American hostages held in Tehran, now plans to exempt at least some of its current trade with Iran from the sanctions.
According to Richard Cooper, U.S. undersecretary of state for economic affairs, this "would really gut their commitment at Luxembourg."
The Carter administration also objected yesterday to Japan's plan to let its oil companies pay $35 a barrel for some Iranian oil in an exception to Tokyo's pledge last month to hold the price line at $32.50 a barrel.
Washington Post correspondents Leonard Downie Jr. in London and William Chapman in Tokyo reported that the allies remain unenthusiastic about imposing sanctions because they do not believe they will have much effect on Iran while they could be very damaging to the Europeans and the Japanese.
Allied attempts to modify their earlier pledges come in the wake of an abortive U.S. effort to rescue the hostages. The pledges preceded that mission by a few days, and allied leaders said at the time that they would take part in economic retaliation to head off, or at least delay, any American military action in Iran.
The State Department said yesterday that it had "no reason to believe that the members of the nine-nation European Community as well as our other allies will not proceed with the imposition of sanctions along the lines previously indicated by these governments."
The administration also told the Japanese government that it hopes the oil companies will be instructed to abide by the pledge to pay no more than $32.50 a barrel for Iran's oil, U.S. officials said.
Holding down Iran's oil price, and especially the expected European economic sanctions, are important elements in the American campaign to apply economic pressure for the hostages' release, Downie cabled. He also reported:
If the Europeans water down their sanctions, Italy could complete $3 billion worth of construction contracts on which nearly 2,000 Italians are working in Iran. Britain, for example, may continue exporting Chrysler U.K. automobile kits for assembly in Iran, part of Britain's $70 million worth of trade each month with Iran.
In reluctantly deciding last month to join Carter's boycott and to try to persuade him to refrain from military moves, the European leaders apparently agreed in secret only on banning future contracts for trade and services.
Common Market diplomats in Brussels compiled a list of exemptions for current contracts last week to be considered by the nine foreign ministers when they meet at Naples next weekend.
This is not what American officials were led to believe when the foreign ministers' meeting in Luxembourg April 22 decided their sanctions would be "in accordance" with a U.N. resolution vetoed by the Soviet Union at the Security Council in January. The U.N. resolution called for a near total embargo, exempting food and medicine. u
The foreign ministers' decision was reaffirmed by the Europeans heads of government at a Common Market summit a week later.
Italian officials said last week they had intended all along to seek exemption for current contracts to protect their substantial investment and large numbers of Italian workers in Iran.
French officials argued in consultations with their European partners after the Luxembourg decision that preventing the completion of existing contracts could be regarded as expropriation under French law and expose the Paris government to expensive damage claims.
British officials said they were undecided whether current trade should be affected. Enabling legislation for British sanctions to be enacted by Parliament this week specifically exempts existing contracts, although officials maintain they are covered by other legislation already on the books since World War II.
The vetoed U.N. resolution called for curbs on Iranian banking transactions, but it is still unclear whether Britain would do that. The freezing of Iranian assets in Britain has already been ruled out, according to British officials.
Japan yesterday said it was not backing down on its commitment to hold the price of oil at $32.50 a barrel. Officials said that a one-time payment of the $35 a barrel demanded by Iran was being considered for Iranian crude shipped during the first three weeks of April, Chapman reported.
But American officials, trying to avert any break in the prices, have urged Japan to reject the higher price. Tokyo sources said the oil was loaded on a "price-pending" basis and the Japanese companies are willing to pay the higher price to avoid any question of default. Japan's Ministry of Trade has tentatively agreed to go along with that plan. The difference could amount to as much as $25 million.
"We are unhappy, yes," said one U.S. source. "We were told that they would not go over $32.50 a barrel and so far we have had excellent cooperation. wWe believe they still don't have to do it."
Japan's strategy in going along with President Carter's sanctions has been to take enough action to satisfy the Americans but avert an open break with Iran, which supplies about 10 percent of its oil imports.
A British official, who accompanied Foreign Secretary Lord Carrington to Washington last week, put it this way: "We found it was not understood in Washington that the imposition of sanctions by the Europeans would be much more costly to them than sanctions were to the United States."