OSLO -- When investigators here first confirmed Reagan administration allegations that Norway's leading defense contractor had illegally sold high technology equipment to the Soviet Union, the Norwegian government reacted with guilt, embarrassment and a desire to make amends.
It agreed that the sale of powerful computers, built by Norway's Kongsberg Vaapenfabrikk, had damaged NATO security by allowing the Soviets to build new marine propellers that help make their submarines quieter and better able to evade western detection.
In person and in writing, officials of Norway, a NATO member, have apologized repeatedly to the United States, which has said it will have to spend billions of dollars to counter the harm done to western security. The government here has introduced strict new export controls and is participating in a bilateral study to assess the damage and determine how best to redress it.
But Norway's chagrin is fast giving way to resentment and some anger, officials here said, in the face of what they see as a proposed U.S. punishment that is far out of proportion to the acknowledged crime, and a generally punitive American attitude that ill-befits Oslo's idea of how allies should treat one another.
The ostensible breaking point for Oslo has been legislation, passed by the Senate and still pending in the House of Representatives, that would bar U.S. importation of Kongsberg products for five years.
Government-owned Kongsberg is the only weapons researcher and producer of note in Norway. According to Defense Minister Johan J. Holst, such a measure could mean the effective end of the national defense industry and could severely undercut Norway's ability to perform its NATO-assigned tasks.
The data division and East-West trading arm of the company that were responsible for the 1981 sale in question no longer exist at Kongsberg. The weapons division, which is now the only part of the company in operation, had no involvement in the technology sale.
Of particular concern is a pending, multimillion-dollar contract to sell Kongsberg's premier product, the lightweight Penguin missile, to the U.S. Navy. Currently experiencing major financial difficulties, the company believes that the American purchase would give the Penguin what Holst called "the Good Housekeeping seal . . . that would sort of help it along" with other potential buyers.
Some U.S. officials have suggested that, in addition to the import ban, Norway should be made to pay reparations or part of the cost of American research and development of methods to counter Soviet submarine gains.
But the disquiet here goes far deeper than worry over possible fiscal problems for Kongsberg or economic costs to Norway.
On a political level, there is concern over the appearance of government "kowtowing" to a U.S. administration that is widely seen here as divided and flailing. "It is difficult in this country to get people to believe that we're going to be held answerable for failing to control one industry by a government that can't even control itself," said one senior government source who did not want to be named. "It appears as though we are crawling."
Officials here now see their principal problem residing in Congress. Holst and other officials believe that Norway is being punished because of congressional ire at Japan, whose Toshiba Machine Co. was a co-contractor with Kongsberg in the Soviet deal and also is subject to the proposed sanctions.
"It has to do with the temperature of U.S.-Japanese relations in the trade sector," Holst said, "and we got caught up in that. The Japanese tiger was not the perfect tiger to be riding at this point."
The media here also have suggested that the technology issue is a congressional guise to cut Kongsberg out of the U.S. market in favor of American competitors. But government officials disagree. They say the congressional reaction took its cue from the administration, where ideology and excess zeal in policing technology transfers to the East first brought the issue to a boiling point.
Criticism of the United States on any level is rare in Norway, which considers itself a staunchly pro-American and highly defense-conscious nation. One local journalist described Norway as "the Bulgaria of NATO," a reference to the Warsaw Pact country that most closely follows the Soviet line on defense and foreign policy matters.
A small, seafaring nation with an extensive coastline and a shared border with the Soviet Union, Norway has feared being overcome in any global conflict since World War II, when it was able to put up little resistance to German occupation. American assistance and reinforcement are considered the keystones of Norwegian security, and the current Labor government, like its conservative predecessor, consistently has increased annual defense expenditures by 3 percent or more.
"The Americans and NATO are popular here," said Nils Morten Udgaard, columnist for Oslo's leading daily Aftenposten and undersecretary of state under former Conservative prime minister Kare Willoch. "Any government not seen as dependable on security matters is in trouble."
Officials note that Norway has a good record of preventing technological leakage to the East. But the United States, they charge, has a recent history of seeing leaks where they do not exist.
"We had had a few instances where there had been alleged violations on the Norwegian side, and they turned out on closer examination not to hold water," Holst said. "So when this case came up," with U.S. reports to Norway beginning in February, "the initial reaction of a little bit of skepticism must be understood against a background of there having been several calls before about wolves where there were no wolves."
At the same time, officials point out that recent U.S. security leaks -- in particular the Walker spy ring involving the U.S. Navy that is believed to have first informed the Soviets of western success in tracking their undersea movements -- also have affected America's allies.
"I have yet to hear anybody suggest that we start paying each other reparations if there is a spy caught who has somehow violated shared security," said Holst. Reiterating the point he made more privately during a lengthy fence-mending visit to Washington late last month, Holst said, "We consider punitive actions, and talk about reparations and sanctions, to be an absolutely impossible way for allies to deal with each other."
There is no disagreement here that the Kongsberg sale was illegal or that it damaged western defense. But senior Norwegian military officials, said to be disturbed by what they see as insulting U.S. behavior, have begun publicly to question the Pentagon's assessment of the extent of that damage.
"I don't know exactly what is being said in Congress," the commander of Norway's submarine fleet, Capt. Reidar Skarlo, said in a television interview here last weekend. "But . . . the impression has been created that the Soviets have achieved greater success in silencing submarines than we have been able to detect."
The head of Norway's submarine training school, Berndt Utne, added that "there is a long chain of other components -- generators, pumps, transformers, cooling systems" that also influence submarine noise levels. "The picture," he said, "is far more complicated than only the sound related to the propeller."
The Norwegian defense establishment maintains that if anyone can fully share U.S. worry about quieter Soviet submarines, it is Norway. Just opposite the northern border lies the Kola Peninsula, site of the biggest military installation in the Soviet Union and home to more than one-third of the Soviet Navy.
One of Norway's principal jobs in NATO is to monitor the comings and goings of Soviet vessels through the Barents Sea. Until the Kongsberg allegations were made, officials here have said, U.S. naval officials had expressed no unusual concern about Soviet propellers to their Norwegian surveillance counterparts.
Similar questions about the level of damage done have been raised recently in Japan. The sale to the Soviets was under a joint contract for sophisticated machine tools built by Toshiba and operated by Kongsberg "numerical controllers," or computers. Both pieces of equipment were of a level of sophistication that violated regulations adopted by Cocom, the coordinating committee of western allies and Japan that sets rules for export to the Soviet Bloc.
Questions also are being asked in Washington, where disagreements have begun to emerge over the Pentagon's initial determination of how much the Soviets had gained from the technology leak.
But Norwegian officials consider the damage assessment issue to be separate from investigating violations of export law and any U.S. punishment. They have been gratified in the past week by administration appeals to Congress to step back from the proposed sanctions and say they have been told that the administration is satisfied with their handling of the investigation.
But they fear that the administration may have "started a fire it couldn't control," in the words of one official who did not want to be named. "They are a little scared on the Pentagon side of the implication of changing their line at this point."
Holst believes there may be even more complications with Congress. "What I think has been partly the difficulty, not with the administration but vis-a-vis people on the Hill," he said, "has been that they want to see blood . . . they want to have people go to court and have severe sentences meted out."
But Tor-Aksel Busch, the prosecutor handling the case, pointed out that under Norwegian law, "it is impossible to charge anyone with violating a Cocom regulation."
Two laws may be indirectly applied. One, prohibiting the sale of goods to foreign countries without government permission, has a two-year statute of limitations. The other, penalizing the submission of false information to the government, has a five-year limit.
Investigators here have established that in 1981, Kongsberg signed a contract with Toshiba for delivery of four NC2000 numerical controllers. The computers, specially designed models for legal sale to the Soviet Bloc, were not on the Cocom prohibition list. But the Soviets requested, and Toshiba-Kongsberg secretly agreed, to upgrade them to perform functions that were restricted.
In 1982, Kongsberg obtained a government export license based on what Busch said was false information about both the computers and their ultimate destination. The equipment, theoretically destined only for Japan, was delivered to the Soviet Union on June 4, 1983.
Since then, virtually the entire management staff at Kongsberg has been replaced as part of an unrelated restructuring of the company demanded by the government in exchange for ongoing subsidies. One of the few people remaining from the old guard was Bernard Green, a British citizen who was the sales manager of Kongsberg Trading, a subdivision established solely to do business with the East.
Although he initially denied knowledge of the illegal sale to police interrogators, Green said in an interview, he acknowledged it once he realized they had obtained documents on the secret specifications for the four NC2000s delivered in 1983.
On April 30, Busch brought "preliminary charges," short of an indictment, against Green under the Norwegian law prohibiting submission of false information, based on his principal role in the negotiations and signature on the sales contract. In June the limit on prosecution expired. No one else can now be charged in the case, Busch said.
Green, who said that numerous former Kongsberg executives and engineers knew of and approved the illegal sale, said he is being made a scapegoat in the case. At the same time, he insisted that the alleged violation for which he is likely to be prosecuted, which carries a maximum penalty of two years in prison, was a minor one in the world of Soviet Bloc trading.
"You have to understand what business is like in Eastern Europe and the Soviet Union," Green said. "There is nothing like fair trading. We've lost many, many contracts because we weren't willing to shave the rules." Many others, he said, including U.S. companies, were not so reluctant.
Last month, Robert Dean, the U.S. National Security Council official in charge of export controls, visited Oslo with new information about recent NC2000 sales that officials here said were likely to include some additional violations.
Norwegian police now are looking at all Kongsberg files on NC2000 sales since the early 1970s and are rushing to examine the most recent ones in hopes that, if violations are found, the limit on prosecution will not yet have expired.
But sources said that so far, indications are that Bernard Green and the single Toshiba sale may be the only ones ever to go to court, a prospect that the government here realizes is not likely to please Washington.