House-Senate conferees, agreeing to break a 16-year moratorium on the production of chemical weapons, gave final approval last night to a $302.5 billion defense bill authorizing increases in military spending next year only large enough to cover expected inflation.
The 39-member conference committee approved the package by voice vote, ending two weeks of closed-door sessions to resolve more than 1,200 differences between the House and Senate bills.
Conferees must still present the fiscal 1986 spending bill to both chambers for final approval in votes that are expected next week.
The chemical-weapons measure that had been defeated for three straight years tied up the conference for several days, with House members finally backing off a condition that the president first certify that the North Atlantic Council of NATO formally agrees to deploy the nerve-gas shells in its territory.
Senate conferees had urged unconditional approval of the $124.5 million budget to modernize the U.S. chemical stockpile, asserting that the House demand would create pressure for allied European governments because of peace activists in their countries.
A compromise approved yesterday required that NATO's supreme commander certify that he has a plan for deploying new chemical weapons in Europe, according to Rep. James A. Courter (R-N.J.), one of the conferees.
The decision to produce new offensive chemical weapons by 1987 for the first time since 1969 marks a victory for the administration, which has argued that the U.S. stockpile is too obsolete and too small to defend against a Soviet nerve-gas assault in Europe.
Pentagon plans call for producing new weapons, known as binaries, which are regarded as safer to handle, store and transport because they are made up of two nontoxic chemicals that only become lethal when mixed during firing.
Approval of binary weapon production was one of the few administration successes as Congress cut more than $10 billion from Reagan's original request that called for a 6 percent increase in military spending after inflation.
Other administration losses were sealed by conferees who:
*Set a statutory limit of 50 MX missiles, authorizing half of the number President Reagan sought for a program he promoted as vital to modernize the U.S. strategic force.
*Trimmed $1 billion from the president's request for research of the "Star Wars" missile-defense system, authorizing $2.75 billion.
*Agreed to kill the advanced medium-range air-to-air missile (AMRAAM) unless the defense secretary can certify by March 1 that the troubled weapon will work and cost no more than $440,000 each. The administration had asked for $540 million to produce the first batch of 90 missiles next year, but conferees earmarked just $150 million in procurement money to help a new contractor gear up for production.
Conferees approved other programs that reflect Congress' growing independence on defense matters, authorizing more than $100 million more than Reagan had sought for development of the mobile Midgetman missile.
The conference also voted to direct the Air Force secretary to hold competition among light fighter aircraft next year to determine whether the F16 -- for years a mainstay preferred by the Pentagon -- can be matched for cost and performance.
The House, taking the initiative to deal with defense contractor abuse, passed a raft of procurement reform bills that tied up conferees for the past week and resulted in some compromises that are expected to displease their sponsors.
Conferees, attempting to slow down the "revolving door" syndrome, agreed to bar political appointees who act as primary defense contract negotiators from working for weapons manufacturers with whom they have dealt for two years after leaving the government.
Another House bill required the Pentagon to seek a second source for all major procurement and research and development contracts unless such "dual sourcing" caused cost increases or significant delays in weapons systems. Exceptions to the rule could not exceed half of the total value of contracts in any year.
The Senate had passed a bill mandating "dual sourcing" only for procurement contracts except when cost, time or national security were jeopardized.
A compromise version passed in which the House approach prevailed without the limit on exceptions.