HOUSTON, JULY 7 -- Soviet President Mikhail Gorbachev won't be in attendance, but he and the critical problems of the Soviet economy are likely to dominate discussions at the annual economic summit of the major industrialized nations that begins here on Monday.
Western leaders used their NATO summit in London this week to assure Gorbachev that he no longer need fear the military alliance, but there is likely to be less unanimity among the seven participants here about how far the West should go in feeding Gorbachev's growing appetite for Western economic assistance. President Bush already has voiced firm opposition to U.S. participation in a massive Western aid package until the Soviets institute economic and political reforms.
But aid to the Soviet Union is only one of the contentious issues at this 16th summit, the first hosted by Bush. The leaders also find themselves divided on the two other main agenda items -- trade and the environment.
Bush, according to advisers, will push hard to break a deadlock with the Europeans on agricultural subsidies that U.S. officials say threatens the successful conclusion of the current, nearly four-year-old, round of international trade negotiations. On the environment, Bush will be on the defensive, resisting European and Canadian efforts to move more rapidly to combat global warming.
Participants in these annual economic policy gatherings -- the government heads of Britain, West Germany, Italy, France, Canada and Japan in addition to Bush, collectively known as the Group of Seven or G-7 -- have a way of smoothing over their differences before issuing their final communiques. But the differences at this year's three-day session, held on the campus of Rice University, are rough enough that they may be more difficult than usual to smooth over.
After a year of upheaval in Eastern Europe and the continued deterioration of the Soviet economy, the Houston summit will be dominated less by traditional issues of economic policy coordination and exchange rates, and more by the intensive discussion of the new shape of Europe that has held the attention of Bush and other leaders all year.
Rather than focusing on how to fend off or diminish the Soviet Union and its former satellites, debates in this tight inner circle of Western leaders now center heavily on how the global economy can incorporate them. Discussions here are likely to concentrate on questions of Gorbachev's political future, the prospects for restructuring the battered Soviet economy and how the Soviets will fit into a world where economic power is replacing military prowess as the coin of the realm.
The West has a vital stake in preventing instability in the Soviet Union -- which almost surely would spill over in Eastern Europe -- at a time when the West is trying to encourage market reforms in the former Soviet satellites.
And, as the NATO summit in London showed, the Bush administration is willing to go to great lengths to accommodate Gorbachev's concerns about the transition underway in Europe, particularly German unification.
Bush received a letter from Gorbachev last week outlining the Soviet leader's interest in receiving Western economic assistance. Although the president opposes a multilateral aid package, he has said he has no problem with West Germany or others going ahead with bilateral aid. West German Chancellor Helmut Kohl has called for a $15 billion package of long- and short-term loans, and his desire to aid the Soviets has been supported by French President Francois Mitterrand.
"There are some countries that are in a position to provide economic assistance that want to move forward now, and it seems to us that the countries that want to do that should do that," Secretary of State James A. Baker III said today in an interview on Cable News Network.
At their separate summit in Dublin last month, the leaders of the European Community member nations directed their administrative body to make a study of the needs of the Soviet economy.
Even before they arrived here in Houston, the leaders of the seven nations appeared to be moving toward some kind of compromise, however. On Friday in London, Kohl acknowledged that he has not gained widespread support for his proposal and that the Soviets may have to wait until later this year for such massive assistance from the West.
Bush has signaled his willingness for the Germans to provide unilateral aid to the Soviets, which is seen as part of the price the Germans are willing to pay for Soviet acceptance of unification between West and East Germany. "If the Germans want to provide some aid, it's not going to be the end of the world," a senior administration official said today.
Japan, like West Germany, has large surpluses with which to help the Soviets, but it opposes economic assistance until there is some resolution of a dispute over four islands in the Kuril chain off its northern coast, which Japan has claimed since the Soviets took them over after World War II.
Canadian Prime Minister Brian Mulroney and British Prime Minister Margaret Thatcher also oppose aid for the Soviets, fearing that it would be money poured down the drain unless the Soviets restructure their economy.
Only the Italians have lined up behind the Kohl-Mitterrand idea.
White House Chief of Staff John H. Sununu today likened the administration's current approach to the Soviet Union to a "fisherman trying to land a 10-pound fish on a two-pound line -- a little bit of slack, a little bit of tension, never trying to do it too quickly or you lose it all." In the administration's eyes, the NATO summit apparently was the slack and the opposition to economic aid is the tension.
An administration official said today the United States hopes that the economic summit at least will yield unity on language that would outline "guidelines by which each country is free" to deal economically with the Soviet Union. The official said of Kohl, "He's coming here in a mood to press extraordinarily hard, but is expecting at a minimum to get an umbrella under which he can pursue what he wants."
The G-7 communique is expected to examine a number of ideas to offer technical assistance to Eastern European countries through the World Bank and the International Monetary Fund. But a suggestion that the IMF make a study of Soviet financial needs or problems is not likely to be approved here, a senior official said.
Western powers generally feel they were burned a decade ago in what they see as a similar situation: Their heavy cash assistance to Poland helped to create a debt-overhang problem whose cleanup is on this year's summit agenda. Bush is pressing the Europeans to reduce or forgive a good share of Poland's $30 billion public debt. The temporary suspension of Polish debt service payments, arranged last year by the "Paris Club," expires in March 1991.
Beyond monetary assistance, the Houston summit will take a broad look at East-West relations in the context of last year's sensational political upheavals that saw the dismantling of the Warsaw Pact and assertion of political independence by six former Soviet satellites. The G-7 will endorse the July 4 decision of the larger "Group of 24" industrialized nations to extend to Czechoslovakia, Yugoslavia, Bulgaria, and East Germany the same assistance they agreed last year to extend to Poland and Hungary.
U.S. officials say their top priority in Houston will be to find a formula to break the deadlock on the current round of international trade talks, begun in Punta del Este, Uruguay, in September 1986. The talks are stalled in a U.S.-European disagreement over agricultural subsidies.
A recent communique of the Organization for Economic Cooperation and Development in Paris noted that taxpayers and consumers in the industrialized nations pay $245 billion a year to support farm prices.
Bush would like to see these subsidies phased out in the next decade. The Europeans contend that this timetable would generate heavy unemployment among farmers. The American position is that without agreement on the farm issue there will be no agreement on other critical issues in the Uruguay Round, such as coverage of trade in services under the rules of the General Agreement on Tariffs and Trade, the international accord that governs trade among most nations.
"But the situation looks intractable," an American official said.
U.S. officials dealing specifically with trade matters tend to be a bit more hopeful. "Bush is fully briefed on this and prepared to have it out hammer and tong," one official said.
The United States will find itself on the defensive during discussions about the environment, which will focus largely on how to combat global warming.
Canada and most of the European nations will push hard for agreement on new steps to reduce "greenhouse gases," pollutants such as carbon dioxide that contribute to global warming, in order to make credible the bold declarations on this topic at last year's G-7 summit in Paris. But the United States, reflecting the go-slow approach that drew criticism at an international conference on the environment in Washington last spring, prefers further study rather than immediate action on what it still considers inconclusive evidence. At the same time, U.S. officials say the United States already has done more than other countries to combat environmental problems at home.
There is concern among U.S. environmentalists that Bush administration intransigence could mean an opportunity lost in Houston. "The real loss is if other countries fail to act at this meeting in deference to the United States," said Gus Speth of the World Resources Institute, an international environmental think tank.
Others among the seven heads of state will seek endorsement of policies in which they have a special interest.
Japan, for example, will urge recognition that the G-7 is willing to restore more normal relations with China by lifting the sanctions set in place after the atrocities in Tiananmen Square last year.
Oddly enough, the usually dominant staple of these conferences, the sweeping assurances that the global economy is in tiptop shape under the guidance of the wise group of existing leaders, will be somewhat muted.
There will be a nod in the direction of the recent U.S.-Japanese "Structural Impediments Initiative" agreement, which holds out the promise of long-term changes, including a reduction of the U.S. budget deficit. But the U.S. economic outlook is uncertain -- "sluggish" was Bush's word last week when he announced that a tax increase is possible.
Outside of the United States, officials are concerned about the potential for inflation, but Washington worries more about recession. Questions relating to interest rates and exchange rates will get only routine mention.