The government of Prime Minister Margaret Thatcher will not order British companies to defy the Reagan's administration's ban on the sale of U.S.-licensed equipment for the Siberian gas pipeline, but officials made clear today that Britain would defend firms against U.S. retaliation if they honor existing contracts.
Officials said today that the Conservative government felt it could not "interfere" in the commercial decision of private companies by forcing them to take action that might lead to a costly legal battle with the United States. But they said Foreign Secretary Francis Pym, who meets Thursday with Secretary of State George P. Shultz, will reaffirm Britain's intention to protect the companies as much as it can against American penalties if the firms choose to go ahead.
A spokesman for the main company effected, John Brown Engineering, said that for the time being, at least, "we are continuing to work on the project," a contract for turbines worth about $200 million.
Thursday's meeting in Washington, the first between Pym and Shultz, comes at a time of substantial strain in U.S.-European relations, a result of the pipeline dispute and American plans to impose heavy new tariffs on steel imports. On both issues, Britain still hopes to persuade the administration that compromise formulas are possible.
The implementation of the equipment ban and the steel tariffs are highly technical questions that trade officials in Washington and at the European Community in Brussels are still working on. In a day-long visit, officials said, Pym will not have time for substantive negotiations. But they said he will underscore British concern about the political impact of the combined problems and explain why Britain, one of the staunchest allies the United States has in Europe, disagrees so strongly with these administration trade policies.
On steel, Britain, France, Belgium and Italy face new duties on U.S. sales of up to 40 percent, designed to bolster American steel production, which has been hurt badly by the recession.
The U.S. position is that the European steel suppliers are government subsidized and therefore should pay a premium on exports to the U.S. market. Pym is expected to tell Shultz that the bulk of British subsidies to the state-owned steel industry is in the form of unemployment benefits to workers laid off as production in the past two years deliberately has been reduced.
Because it regards the dangers as so serious, Britain sought unsuccessfully last week to reach a bilateral accord with the United States on the steel question. But the British now have resumed bargaining together with their European partners against an Aug. 24 deadline for the Commerce Department's final enactment of the new tariffs. Should these fail, officials believe the consequences of sharply reduced U.S. sales would be the loss of about 10,000 jobs in Britain's steel industry.
"The scaling down of our steel industry in recent years has been a traumatic business," said one official. "We hoped to end all subsidies by 1983. These duties will throw that hope all out of whack."
The pipeline issue is regarded here as more immediately political than steel because it involves attitudes toward East-West relations as well as purely trade questions. Officials said today that the Thatcher government probably comes closer to the Reagan administration position on economic sanctions against the Soviets than any other European government, but is still opposed to the pipeline ban because it involves contracts already signed and affects companies far beyond U.S. borders.
John Brown Engineering, which is producing turbines under a manufacturing agreement with General Electric, said last week that it is making no provisions in its accounts for termination of the deal, one of the largest in its current inventory. The contract was signed last year and calls for delivery through 1984. The Thatcher government already has invoked the first steps of the new Protection of Trading Interests Act, asserting, in effect, that it opposes cancellation of the contract.
The act has not been used before. Officials said enforcement of the next step would mean the company might be in technical violation of the law if it yielded to the U.S. ban. But, they added, John Brown could cancel the contract strictly on commercial grounds. In any case, they said, the Thatcher government is not prepared to order it to do anything.
Under U.S. law, the administration is empowered to cut off exports from foreign firms found in violation of American embargoes and order penalties against U.S. holdings of the firms.
France and Italy instructed companies last week to carry on with existing contracts. West Germany also has said it would honor its deals with the Soviets.