NATIONAL SECURITY COUNCIL MEETING ON JUNE 30 ON EAST-WEST ECONOMIC RELATIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R000601570017-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 36
• Document Creation Date: December 21, 2016
• Document Release Date: August 12, 2008
• Sequence Number: 17
• Publication Date: June 26, 1981
• Content Type: MEMO

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SECRET
8119408
June 26, 1981
MEMORANDUM FOR MR. RICHARD V. ALLEN
THE WHITE HOUSE
SUBJECT: National Security Council Meeting on June 30
on East-West Economic Relations
The attached paper is for the NSC discussion of
East-West energy issues: (a) Security Controls on
Exports to the USSR; (b) Controls on the Export of Oil
and Gas Equipment and Technology to the USSR; (c) The
Siberian Pipeline; and (d) the License for Caterpillar
Company to Export 100 Pipelayers to the Soviet Union.
L. Paul Bremer, III
Executive Secretary`
SECRET
RDS-3 6/26/2001
State Dept. review completed
ON FILE NSC RELEASE
INSTRUCTIONS APPLY
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USSR-Western Europe:
Smaller Gas Deal Possible
Recent reports indicate that Moscow is considering
a scaled down version of the Siberia-to-Western
Europe gas pipeline project. Although we have no
official confirmation of a definite decision, the So-
viets have indicated a desire to build a single 75-
atmosphere line instead of the twin-line system be-
ing planned as late as March. The second line could
still be built in the late 1980s. With only the single
line, gas might begin flowing to Western Europe by
1985, one or two years earlier than under the twin-
line system. Soviet hard currency receipts from gas
exported through the scaled down system would
start sooner but would be only about half as much as
with the two lines; thus it would not go as far to
make up for the expected decline in oil export earn-
The pipeline project proposal still calls for a 20-year
delivery of Siberian gas to Western Europe, but the
scale of the project has changed since its inception in
1979. The project initially was to consist of one 56-
inch, 100-atmosphere pipeline that could transport
more gas than other Soviet trunklines, which op-
erate at 75 atmospheres. This single-line system
could have moved up to 4.8 billion cubic feet per day
(cf/d), with 3.9 billion cf/d earmarked for Western
Europe. The original proposal called for gas to be
piped 5,000 kilometers from the undeveloped
Yamburg field to West Germany, France, Italy,
Austria, Belgium, and the Netherlands. Because of
the reluctance of the Soviet Gas Ministry to operate
a pipeline at the unprecedented 100 atmosphere
pressure, by late 1980 Moscow reportedly had
' This article updates an earlier Intelligence Assessment, USSR-
Western Europe: Implications of the Siberia-to-Europe Gas Pipe-
line, ER 81-10085/Pa 81-10107, March 1981.F_~
swung to favoring a twin-line system, with each line
at 75 atmospheres. This system could transport 5.8
billion cf/d, of which 4.6 billion cf/d could be
delivered to Western Europe and the remainder to
Eastern EuropeF__1 25X1
In recent weeks Moscow reportedly has expressed
considerable interest in yet a third variation. Under
this scheme, a single 75-atmosphere line would be
built from the Urengoy field-already in produc-
tion-rather than the more distant Yamburg field.
Initial deliveries probably could start in 1985, one or
two years earlier than if twin lines were built. The 25X1
single line would have a capacity of about 3 billion
cf/d.
Total Soviet gas deliveries to Western Europe-
project exports plus existing contracts-would reach
only 5.3 billion cf/d under a single-line project,
instead of 7 billion cf/d under the previously
planned system. Total Soviet gas earnings would be
25 percent less than the $16 billion possible if the
twin-line project were undertaken
25X1
The impact of a smaller single-line project on East-
ern Europe is difficult to determine. Czechoslovakia
probably would not receive gas from the single pipe-
line, but the Soviets could still provide compensation
for using the Czechoslovak right-of-way by extend-
ing one of its other domestic pipelines to the Czech
border
Progress in concluding a gas deal with Western
Europe has been stalled because of disagreements
over project financing, gas pricing, and by Moscow's
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Soviet Union: Major Gas Export Pipelines
Norwegian A'Qr<
0 Selected gasfield
North
Sea
Barents
Sea
Mediterranean
Sea
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Sea
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Yamburg Delayed. Development of the Yamburg
field, the Soviets' second-largest gas deposit and
originally the proposed source for the project's gas
exports, has been postponed. Investment constraints
and technical problems-including the difficulty of
installing pipelines in permafrost from the more
remote Arctic field-apparently have persuaded
Moscow to schedule Yamburg for substantial
production for the late 1980s instead of 1985 as
reportedly planned last year. During the current
five-year plan, Urengoy will provide all the growth
in gas output and the initial deliveries for the export
project. Although Urengoy has sufficient gas for
both domestic consumption in the mid-1980s and 25X1
the twin export lines, Moscow may prefer only one
line for that period in order to provide a margin for
error in the field's projected pace of development)
failure to decide on the trunkline system's capacity
and route. The key West German banking consor-
tium-which could provide a major portion of the
financing for pipeline equipment purchases-and
other Western banks have so far rejected Soviet
demands for a 7.75-percent interest rate. With West
German interest rates at roughly 13 percent, the
Soviet proposal would represent an interest rate
subsidy unacceptable to the West Germans. The
West Europeans have also rejected a Soviet demand
that gas exports be priced at parity with oil. At
parity, Soviet gas prices would approximate $6 per
1,000 cf, against roughly $4 currently. A price at
least close to parity seems likely, however. given
recent gas price agreements in the West
result of the current soft oil market
Western Interest. Aside from these considerations, 25X1
Moscow may now perceive that West European
interest in Soviet gas has slackened. The new French
Government is reviewing its energy policy, and al-
though it probably will participate in the project, it
could decide to reduce its gas imports under the
deal. West Germany remains committed to the pipe-
line but has also begun a reappraisal of its increased
dependence on Soviet gas. West European percep-
tions of the extent and nature of the energy problem
and future energy needs may also be changing as a
We do not know why Moscow has decided on a
single line, if indeed it has, but several motives are
possible:
An Early Start
Moscow probably realizes that a scaled down
project is the best way of getting an early start on
some sort of gas export deal. Continuing delays in
coming to an agreement with prospective West Eu-
ropean customers would further postpone the time
when hard currency earnings would flow from the
project. If, as we believe, Soviet hard currency rev-
enues from oil will have largely disappeared by
1985, the urgency of completing negotiations is ob-
Pipeline Constraints. Installing sufficient trunkline
capacity will be the key to meeting Soviet plans to
produce 58.0-61.9 billion cf/d of gas by 1985, com-
pared to 42.1 billion cf/d in 1980. Virtually all
production growth will come from linking the huge
Urengoy field with the central USSR via seven 56-
inch diameter lines with an average length of more
than 3,000 km. The Soviets, however, probably will
be hard pressed to provide enough skilled labor and
equipment to install all the lines and compressor
power required, particularly if a twin-line export
project is included in Soviet plans. East European
labor could provide some assistance, but it also is in
short supply. Although much of the work on a single
export line would suffice for two, a single-line option
would still enable Moscow to reallocate a substan-
tial amount of resources to domestic pipeline
construction. Moreover, Western suppliers of large-
diameter pipe, critical to increased Soviet gas
production, may not have sufficient capacity to meet
the surge in Soviet orders stemming from Moscow's
ambitious 1981-85 pipe-laying plans.
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Implications for Western Europe
The amount of gas flowing to West European cus-
tomers by the mid- 1980s would be only one-fourth
less under the single-line proposal. Although the six
countries participating in the deal might not be able
to reduce their reliance on Middle Eastern oil as
rapidly as desired, West Germany and France, hav-
ing expressed possible reservations about excessive
dependence on Soviet gas, might be more amenable
to the single-line project. Additional gas in any case
probably will be available from Algeria, Nigeria,
and Norway. A negative aspect of the single-line
project would be a reduction in sales to the USSR of
pipe, compressors, and related equipment from a
potential $14 billion for the larger transport system
to perhaps $10 billion
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NSC DISCUSSION PAPER
There are four separate papers which address the
major issues in East-West trade.
1. Security Controls on Exports to the USSR. This
paper presents three options for strengt enjng Allied
security controls on exports to the USSR. Current U.S.
law distinguishes long-term security controls (on "goods
and technology which would make a significant contribution
to the military potential") from more variable foreign
policy controls (which are used for punishment, signalling,
and leverage). This paper does not address foreign policy
controls. Oil and gas equipment and technology, which is
now subject to foreign policy controls but might, be
considered for coverage under security controls, is the
subject of a separate paper. Security controls on exports
to Eastern Europe and to China will also be the subject
of separate papers.
The three options for Allied (COCOM) security controls
on exports to the USSR are:
I) Restrict technology and equipment critical to military
? production and use;
II) In addition to I, restrict technology and equipment
critical to production in "defense priority industies"
which, development, would signs icant y en ance
Soviet military capability; ("Defense priority
industries" would include primarily metallurgy, chemicals,
heavy vehicular transport, and shipbuilding, for which
there is little present COCOM coverage, and would
exclude primarily consumer industries); and
III) In addition to II, restrict all items for use in these
industries.
Option I would not differ greatly from the status quo.
COCOM controls on technical data might be strengthened.
The objective of options II and III, especially III, would
be to slow Soviet economic growth, thereby reducing
resources available for consumption, investment, and
defense. The difference between options II and III is
profound. For example, option II would restrict advanced
technology not already in Soviet hands for specialty steels
used by the military whereas option III would hold back
entire steel mills that produce general purpose steel.
Economic costs to the West would be considerably higher
for option II than for option I and considerably higher for
option III than for options i and II. Options II or III would
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cause some consternation among our Allies.. Option III would
be seen as particularly threatening to Western basic industries,
especially steel, where unemployment is already high.
Our Allies will resist additional controls unless they
are technically precise and we present evidence of military
significance. Selling options II or III would require
personal efforts by the President and key members of the
cabinet.
U.S. industry supports the control of militarily critical
technologies but opposes controls which would not apply
equally to foreign competitors.
The Export Administration Act encourages exports except
for necessary restrictions which would clearly further
fundamental national interests.
2. Controls on Export to the USSR of Oil and Gas Equipment
and Technology. T 11e issue is what policy the Unite tates
should a opt on controlling oil and gas equipment and technology
exports to the Soviet Union. Should the United States treat
Soviet oil and gas development and exports to Western Europe
as a national security concern?
PP
? APPROACH:'
ROACH: The Administration's decision on this issue
should take into account:
the extent to which we wish to impede Soviet energy
development and exports;
-- the political costs vis-a-vis our Allies we are willing
to pay in pursuit of this policy; and,
-- the extent to which we wish to control export of
technology.
In order to make those options that restrict energy
exchange with the Soviet Union both effective and equitable,
the U.S. should present a substantial incentives package
which will contribute to Allied energy security. Such a
package should aim at increasing alliance access to additional
sources of energy and at furthering sustained Alliance
cooperation on energy security concerns.
Option I: The U.S. will actively impede Soviet oil and gas
production and export projects. The U.S. will impose
national security controls on, and deny exports licenses
S for, all oil and gas equipment and technology. We will
use our available leverage to pressure our Allies and
friends to adopt similarly restrictive measures.
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Option II: The U.S. will attempt to impede Soviet oil and
is pro uction and export projects. Recognizing that our
Allies and friends may not follow suit without unacceptably
high political costs, we will use less leverage than in
Option I. We would consider, after consultations with our
Allies, adopting a multilateral approach less restrictive than
implied in Option I. Until this is worked out, the U.S. will
deny export licenses for technology and equipment.
Option III: The U.S. is most concerned about major Soviet
projects which contribute to Soviet production capability and
our Allies' vulnerability to Soviet energy leverage (e.g., West
Siberian Pipeline). The U.S. will make a major effort with
other countries to restrict exports of equipment and technology
for such projects. Until this is worked out, the U.S. will
deny all technology and end-use equipment exports for major
projects while approving end-use equipment exports not for
major projects.
Option IV: Rather than attempting to impede oil and gas
production and exports, our goal will be to deny exports of
technology that allows the Soviets to replicate advanced
Western equipment; this technology would give them an
independent capability to improve oil and gas output and
infrastructure. The U.S. will approve ex
ort
f
d
p
s o
en
-use
equipment.
? 0 tion V: The P U.S. will lift special foreign policy controls
on the export of oil and gas technology and equipment.
(Existing strategic controls under COCOM will remain in
place, some of which may incidentally cover equipment and
technology for oil and gas production and exploration).
3. U.S. Position on the Siberian Pipeline. The issue is what
position the U.S. should adopt towards t e proposed pipeline
designed to supply Siberian natural gas to Western Europe?
Option I: The U.S. will signal its disapproval of the project
byd_enying all exports to the USSR for the pipeline, and press
our Allies to cancel further project negotiations.
Option II: The U.S. will communicate to our Allies and friends
t at we oppose the project, will withhold relevant export
licensing, and encourage them to do the same, until our Allies
have committed to constructing an adequate safety net of
emergency supply.
Option III: The U.S. recognizes its inability to cancel or
significantly delay the pipeline project. The U.S. will,
however, work with its Allies and friends to minimize the
? strategic implications of the project.
Option IV: Adopt a laissez faire approach on the pipeline,
a~ oT wing market considerations to determine European energy
import and energy security policies.
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4. License for Caterpillar to the Soviet- Union. The issuepisystouldptre UnOtedpStatess
Government grant a license to the Caterpillar Tractor Company
for the export of 100 pipelayers to the Soviet Union? The
Caterpillar application states that the 100 pipelayers would
be used as replacement units on the following projects:
-- 30 units for use in West Siberia on construction
of main and feeder lines of the Urennoyi project to carry
gas from West Siberia to Moscow;
-- 25 units for use in Central Asia on construction of
a local oil pipeline;
45 units for use in European USSR on the western
end of the Urenjoya project from Yaroslavl to Polotsk.
Under the time limits for licensing decision set forth
in the Export Administration Act of 1979, the Government has
until early August to decide this case. However, Caterpillar
has already missed contract delivery deadlines and feels that
it must have an early decision in order to prevent Soviet
cancellation of the contract, and consequent Japanese
replacement sales to the USSR. Komatsu, a Japanese firm, is
? currently the only non-U.S. producer of pipelaying equipment
and has sold over 500 pipelayers to the USSR in the past
ten years.
Option I: Deny the Caterpillar export license application.
Option II: Deny export license application if Japanese agree
to stop similar sales by Komatsu.
Option III: Approve the Caterpillar Export license application.
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JUN 2 61981
POLICY OPTIONS PAPER
Security Controls on Exports to the USSR
Executive Summary
This paper presents three options for strengthening Allied
security controls on exports to the USSR. Current U.S. law
distinguishes long-term security controls (on "goods and tech-
nology which would make a significant contribution to the
military potential") from more variable foreign policy controls
(which are used for punishment, signalling, and leverage).'
This paper does not address foreign policy controls. Oil and
gas equipment and technology, which is now subject to foreign
policy controls but might be considered for coverage under
security controls, is the subject of a separate paper.
Security controls on exports to Eastern Europe and to China
will also be the subjects of separate papers.
The three options for Allied CCOCOM) security controls
on exports to the USSR are:
I) Restrict-technology and equipment critical to military
production and use;
II) In addition to I, restrict technology and equipment
critical to production in "defense priority industries"
which,through development,would significantly enhance
Soviet military capability; and
III) In addition to II, restrict all items for use in these.
industries.
"Defense_ priority industries" would include nriii rily
metallurgy, chemicals, heavy vehicular
transport, and shipbuilding, for which therd is little present
COCOM coverage, and would exclude primarily consumer industries.
Option I would not differ greatly from the status quo.
COCOM controls on technical data might.be strengthened. The
objective of options II and III, especially III, would be to
slow Soviet economic growth, thereby reducing resources
available for consumption, investment, and defense. The
difference between options II and III is profound. For
example, option II would restrict advanced technology not
already in Soviet hands for specialty steels used by the
military whereas option III would hold back entire steel
mills that produce general purpose steel.
Economic costs to the West would be considerably higher
for option II than for option I and considerably higher for
option III than for options I' and II. Options ii or III would
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cause some consternation among our Allies. Option III would be
seen as particularly threatening to Western basic industries,
especially steel, where unemployment is already high.
Our Allies will resist additional controls unless they are
technically precise and we present evidence of military signif-
icance. Selling options II or III would require personal efforts
by the President and key members of the cabinet. '
U.S. industry supports the control of militarily critical
technologies but opposes controls which would not apply equally
to foreign competitors.
The Export Administration Act encourages exports except
for necessary restrictions which would clearly further fundamental
national interests.
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BACKGROUND PAPERS
i. Security controls on Exports to the USSR
2. Controls on the Export of Oil and Gas
Equipment and Technology to the USSR
3. The Siberian Pipeline
4. License for Caterpillar Company to Export
100 Pipelayers to the Soviet Union.
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Security Controls on Exports to USSR
?
Introduction
Economic relations in general, and trade relations in particular,
with the-Soviet Union and the East should be conducted within the
broad political-security objectives of the Western alliance. The
Soviet Union remains the principal threat to Western security and
will remain in the posture for the foreseeable future. A large
share of the Soviet Union's GNP goes to *support the military. The
enhancement of Soviet military strength coincides with aggressive
Soviet foreign policy -- Afghanistan invasion, visible threats
to Poland, theater weapon deployment in Europe (SS-20s) and support
for leftist revolutions and terrorism. The Soviets have also
recently intensified efforts to gain access to sophisticated
Western technology.
In light of Soviet actions and intent, the United States must
review its security control policies for exports of.goods and
technology to the USSR and develop a reasonable approach to
controls that can be presented to the Allies.
An important purpose of the current policy review is to structure
controls on exports to the USSR in a manner that is clear and
predictable to American business and our Allies and which at the same time will safe-
guard our national security. Clearly, the present system is unwieldy and needs ex-
tensive improvement. A streamlined system will more likely gain support domestically
Objectives and Approach from U.S. firms and internationally from Allies.
United States objectives vis-a-vis the Soviet Union in trade and
export control policies should be reviewed within such broader U.S.
objectives for East-West economics relations as:
nurture cooperation among the Western Allies and
enhance the commonality of Alliance purposes and
approaches toward the Soviet Union;
strengthen Western defenses in order to deal with
the reality of a rapid Soviet buildup in military power;
counter both direct and indirect projection of Soviet
power;
encourage Soviet behavior that contributes positively
to a pluralistic, free and peaceful world.
There are contrasting policy approaches ranging from the concept
that security is enhanced by slowing the Soviet rate of growth to
the concept that there are Western security benefits from trade in
products not contributing directly and significantly to Soviet
? military capabilities. Having said this, however, there remain
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fundamental and important questions about the process of how to
implement these policies. These range from fewer controls on ex-
ports to stricter controls. In any event we should seek less am-
biguity.about what constitutes permissible exports than at present.
During this decade'the Soviet Union faces increasing economic prob-
lems: manpower shortages, energy squeeze, declining capital invest-
ment and labor productivity. In framing trade policies the Allies
should consider the extent to which Western exports might ease
Soviet resource constraints and facilitate the support of defense
and other militarily relevant sectors, such as metallurgy and
chemicals.
There is some evidence (Kama River) that Western exports of tech-
nical data and products not associated with weapons systems have a
significant impact on Soviet military strength. Soviet imports of
machinery and equipment from the West are rising and now contribute
around 10% of total Soviet investment in this category. U.S. efforts
to expand security controls substantially beyond those directly and
significantly related to Soviet military potential would probably not
be accepted by our Allies, without the highest levels of our govern-
ment involved.
Once attention has been focused on the national security-importance
of a coherent export control policy vis-a-vis the USSR, the prospect
for allied cooperation can be improved by carefully justified and
precise proposals. Then support must be aggressively sought for
these proposals with senior allied defense and national security
officials. Foreign exonomic and trade ministries must also be
consulted since economic and commercial considerations are sometimes
given equal or more weight among the Allies than security factors.
Additionally., any disunity among the Allies can be exploited by the
Soviets for political advantage. As we implement one of the policy
options below-, we will consider the extent to which we can shift
our emphasis from controls on equipment to controls on critical
technologies, as advocated by J. Fred Bucy. End products often satisfy
short-term goals, while leaving the consuming country dependent on
continued imports, whereas the sale of technology confers a new capa-
bility. In the final analysis, we may be able to decontrol some end
products: while strengthening controls on technologies.
Policy Options
Three separate policy options are presented.
Aside from the policy pursued, a fundamental tenet of any
option chosen must be to achieve consistency. and predictability as
well as-clarity and specificity of U.S. controls, both for American
business and our Allies,
The three options presented below: each successive option envisages
additional controls. Selection of any of the options presu
discussions and negotiations to sell the U.S. position in COCOMeand
to use other appropriate fora, such as NATO, to gain support.
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Restrict technology and equipment deemed critical
to military production and use
This option would cover commodities with substantial potential
for military utilization, critical technology and keystone
production equipment beyond Soviet capabilities directly
related to the performance of Soviet weapons systems. The
list of such militarily critical technologies being prepared
in Defense may provide a basis for Commerce in cooperation
with Defense to develop technically precise proposals to
revise. the COCOM list. This option would strengthen current
COCOM controls on'technology.Ctechnical data section). It
would permit-deletion of controls on some end-use products,
which do not have significant military applications and for
which production technology is not easily extractable. A
case in point would be the export of some semi-conductors
(e.g., transistors, diodes and microcircuits) the liberal-
ization of which could be coupled with further strengthening
of controls on critical technology, (keystone equipment,
materials, and process know how). which are necessary for
their production. We would aim to make permanent the
no-exceptions policy to the.00COM-list-originally intended
as a temporary response to the invasion of Afghanistan.-.-.-
in addition to I', restrict technology and equipment critical ' to
.
? n in defense zori tries which, nELuSt d t
'
would si
ficantl enhance Soviet mili tary capability
This contrasts with option I by also including items and
know-how not primarily related to production for direct
military consumption but also production which can be used
in military sectors. Industries to'be covered would
include metallurgy, chemicals, heavy vehicular transport,
and shipbuilding, for which there is little present COCOM
coverage. This option would exclude primarily consumer
industries.
III In addition to I and II, restrict all items*for use in
defense priority industries
This approach goes beyond advanced technology and targets
these same` industries in their entirety.
The difference is profound. Under option II a steel mill
could be sold providing there is no transfer of know-how
of militarily useful steel alloys not already in Soviet
hands; under option III we !would hold on the steel
mills that produce general purpose steel.
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Background
Security controls are long-term, relatively constant measures which,
under current U.S. law,. are applied to "goods and technology which
would make a significant contribution to the military potential" of
U.S. adversaries. This law distinguishes security controls from
foreign policy controls, which. are more variable measures imposed to
further political objectives.
U.S. security' controls closely parallel allied controls, as agreed
in COCOM, the "Coordinating Committee" of NATO countries and Japan.
The shared recognition of the Soviet military threat and the desire
to prevent competition in the sale of war-production goods to the
Communists have kept COCOM intact for over thirty years, although
it is based on no treaty and has no power to sanction any member
that violates its rules.
The COCOM list now covers munitions, atomic energy equipment and
materials, dual-use (civilian/military) equipment and materials
primarily in the computer, electronics, and machine tools areas, and
technical data related to the foregoing. Exceptions to the controls
may be approved at national discretion for the low performance end
of the spectrum; but exports of higher performance listed goods and.
technology require unanimous agreement within COCOM. In the past,
most exception requests were approved; but, following the invasion
of Afghanistan, the U.S. won de facto allied acceptance of a policy
of approving no exceptions for exports to the USSR.
COCOM did not accept the U.S. post-Afghanistan proposal for informal
consultation concerning plant and technology exports which would
advance the growth of sectors of the Soviet industrial base that
contribute indirectly to military strength. Our Allies criticized
the proposal's lack of specificity. The United States recently
-submitted a proposal to add to the COCOM list three specific items
in the metallurgy sector.
Securing a strengthened security control policy among our Allies,
which is implied with the selection of any of the three options,
will require an understanding at the highest levels as to the
direction in which the alliance will move in strategic trade with
the USSR. Effective restraint of high technology transfers to the
USSR by COCOM members will require consultations with economic and
trade ministers as well as defense leaders and NATO.
1. Impact on Soviet military potential
2. Allies' attitude toward controls
3. Impact on U.S. and Western economy
Q cD` o cl-r
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IMPACT ON SOVIET MILITARY POTENTIAL
Option (I) Restrict technolo
and equipment ment deemed critical
to military product
a
ears through illegal trade and clandestiner
channels. The impact of these items on Soviet military is difficult to measure, but withholding r Pnlythel
to restrain industrial growth and productivity p wsupp cttgitly help
military sector. supporting the
The Soviet union has had a high degree of. success in developing its
military capabilities. This
of indigenous efforts. and Western technology; much Western pro-
duction equipment and technology having military relev
wnich
development
military would significantly enhanceh Ich capabjli a Soviet
This option would sharpen the COCOM controls in advanced tech
for industrial sectors that su nology
would more clearly define controlstonitechnicalodatai.on, and
It would also create. a technolo
sectors largely unaffected b gY gap in industrial
Soviets to expand and diversifyuR&Dneffortsoto,staysabreastgof the
the WeWest, delaying and impeding progress (as well as reducing
reliaby) in at least some military development and production
programs. The military impact of this option would be cumulative
and longer-term. Examples of additional COCOM coverage which
might be negotiated under this option would be advanced technology
for steel mills and for large floating drydocks (useful for the
repair of not only merchant marine vessels but also large combat
vessels such as the Soviet Kiev class helicopter carriers or the
new nuclear-powered cruiser Kirov).
Option (.III) Options- I and II lus control all items for use
in defense riorit industries
chemicals, heavy vehicular transport mshipbuilding,
P etc.
This option would have significant additional effect (beyond the
first two options) in these militarily related industries.
In the short-run this would contribute to the slowing of Soviet
economic growth, thereby reducing the total resources available
for consumption, investment and defense. Under these conditions
a constant (or increasing) rate of military expenditures could be
maintained only at the expense of the Soviet consumer. Examples
of additional coverage would be entire turn-key projects, such as
all items for the Kama River Truck. Plant and for ferrous and non-
ferrous production facilities even if the Soviet Union possessed
the technologies involved.
SECn-
on
rior:L
-----*.
qi
pmendeemed critical to
Option (II) pion I plus restr
A more refined assessment of the military impact could be made
.when a definitive list of critical technologies becomes availab
This option would continue a le.
on Soviet weapons manufacturingo industrieshe current level of impact
f technology and
2 n
roduct i
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Attachment 2 .%.
ALLIES' ATTITUDE TOWARD CONTROLS ON EXPORTS TO THE USSR
Western Europe and Japan have encouraged trade with the USSR for
both economic and political reasons since the early 1950's. Western
European governments have often promoted it as a long-range means to
better East-West relations. They view the Soviet Union as a natural
market for their industrial products, especially capital equipment
and as an important source of energy and other raw materials. They
accept controls over specific strategic items, but they typically
cally
to decontrol items which become technologically less
critical. Proposals for new export controls must bear the burden of
proof. Historically COCOM governments have accepted new controls
when the military importance is clearly demonstrated or when the
controls will have little effect on European and Japanese firms.
Since the invasion of Afghanistan, several COCOM governments have
expressed their willingness to consider additional precisely defined
controls on technology transfers to the Soviet Union provided the
U.S. could demonstrate their strategic relevance in an area of
Soviet technological deficiency.
.Option I, which is little more than a reaffirmation of current COCOM
controls plus making permanent the "no-exceptions" policy on exports
to the USSR, would probably be accepted by our allies, since
basically it's the status quo. It would permit some strengthening
? of controls on technology transfers as well as
of some controls on end-use products which donotrhave lsiignificant
military applications. The trade effect of Option I is probably
neutral in the sense that there would be no significant additional
impact on allied exports (compared to post Afghanistan levels).
Options II or III would cause some consternation among our allies
since they would affect a larger part of Western industrial exports
to the USSR. Option III would be seen in Western Europe as
particularly threatening to their basic industries (especially
steel) and their capital good sectors, where unemployment is already
high. If the items or projects proposed for control are available
to the USSR from non-COCOM sources, even at higher cost, Western
Europeans will probably resist any new controls. Since industrial
exports to the USSR are less important to the U.S.,
and relatively, than to the FRG, France, and Italy, it alsbeutely
politically difficult to gain European acceptance to a substantially
tightened controls policy.
Industrial trade with the USSR is less important to Japan than to
the major industrial countries of Western Europe, but more important
to Japan than to the U.S. The Japanese were more cooperative than
most Europeans in observing sanctions imposed after the Soviet
invasion of Afghanistan. Japan, nevertheless, probably will not
accept sharper controls for strategic purposes unless the major
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?
2
European Allies clearly support them. Japan believes there is
.considerable scope for expanding exports to the Soviet market,
especially?.for the economic development of Siberia, and will
scrutinize closely the actions of its competitors before agreeing to
'tighter controls;
New controls are thus much more likely to be accepted if they would
(1) affect a small proportion of our Allies' current exports, (2)
clearly demonstrate, through well justified and technically precise
proposals, a direct or significant indirect effect on Soviet
military potential, (3) cover items not available from non-COCOM
sources, and. (4) avoid appearing to shift commercial advantages
among COCOM members. An approach to strategic controls, targeted to
military applications and those industrial sectors clearly
supporting military applications, is the most likely to be accepted.
Coordination with Our Allies
hv..
Given the present. economic crisis in?Western Europe, with the
highest unemployment since World?.War II, even modest changes in
.controls will require thorough technical justification and a major
effort at high political levels. If we wish to move toward more
sweeping controls, we should expect to undertake an intense process
of education to persuade our Allies at Presidential and Ministerial
levels of the overriding need to strengthen the controls and the
relevance of the proposed measures to increased security.
decisions on export control policies are made in Western Europeeby
political parties and economic ministries, rather than defense
'ministries, it will not be sufficient for the U.S. to convince the
latter (which are, in many cases, more sympathetic to U.S. views on
security controls).
The U.S. has little effective economic leverage to speed up the
education process. U.S. trade concessions to Western European
countries are balanced by concessions they give us; a-withdrawal
U.S. GATT commitm
t
of
en
s would inevitably lead to retaliation.. The
billion trade sur
l
$20
p
us we enjoyed with the European Community in
is based in
art
1980
p
on concessions which European governments find
inconvenient (e.g., existing tariff levels on soybeans,. feed
supplements, petrochemicals, synthetic fibers; textiles).
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?
?
Withholding of existing technical or military cooperation could
reduce alliance capability although withholding certain advanced
military technologies (Data Exchange Agreements, etc.) may provide
the U.S. some leverage. The allies could well react strongly to any
attempt to coerce their cooperation; the result would then be less
cooperation on other issues, including force enhancement. It might
be more effective to make offers of new technology expanded controls, if we are confident that the benefits conditional ntheunew
controls would be greater than the costs to our security of delaying
our allies' military modernization, and if we are confident that
this would not be portrayed publicly as undercutting our allies.
U. S. industry would react favorably to this approach since they
perceive transferring technology without selling military equipment
as losing market share.
There are some signs that the climate for more restrictive proposals
within the alliance may be improving. Mrs. Thatcher seems receptive
to our overall security objectives. The French. use their relations
with the Soviets as an opportunity to demonstrate their independence
from American policy, but they share with us many strategic concerns
and may well be moving toward a more compatible course. The Italian
.attitude is conditioned in part by the strength of the Italian
Communist Party. The Japanese view access to Soviet raw materials
as important to their future development, but they are wary of the
risks of overinvolvement. Even the Germans, who have been wedded so
closely to Ostpolitik, appear to be a little more on the defensive.
All this is not to say that the allies would leap to embrace our
proposals, but simply that we should not set our sights too low in
advance.
What all'of the allies have in common is a keen sense of commercial
competition. They resist being talked into partial measures whose
sole effect, they suspect, is to hand over a sale to another
country's exporters. The nightmare shared by virtually all of their
trade officials is restraining one of their own companies from
making a sale to the Soviets, only to read ins the newspaper that t the
sale has gone to the French or the Germans.
This, alas, has happened. The Soviets and their Warsaw Pact
partners have exploited these fears very skillfully,
upward-ratcheting political and economic pressures. creating
U.S. proposals for new controls will require a major effort to
persuade the allies, no matter which of the three options is
selected. Even new technology controls under Option I will probably
not be agreed unless they are technically precise and we
evidence of military significance. Present
policy under Option I' may Be difficult to achieve withoutpaions"
reduction of coverage from the present COCOM list. Selling Options
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II or III will require personal efforts by the President and key
members of the Cabinet. In addition, we would have to make our case
for such controls with key economic policy officials and defense
ministers in allied capitals, while at the same time presenting
precise proposals and careful technical arguments in COCOM.
There is one other aspect to the problem which concerns the legal
ability of the allies to control technology transfers absent
equipment controls. U.S. interests in strengthening technology
controls must recognize this possible allied constraint.
In the end it seems possible to reach an allied concensus if we
successfully build upon genuine and common concerns for security
while assigning due weight to the economic interests at stake.
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Attachment 3
?
ECONOMIC IMPACT ON U.S. AND y,ESTERN COUNTRIES
S umrr a r y
The economic impact on COCOM countries of the various options for
refined security controls on exports to the USSR would vary
substantially among options as well as among countries.
According to the methods used to estimate trade impact associated
with the three options, it is estimated that the direct trade effect
(1979 pre-Afghanistan base) on all COCOM countries would be as
follows (on a yearly basis):
Loss of trade: (I) $423 million; (II) $845 million, and (III) $1.7
billion. The corresponding number of jobs (1979 base) associated
with this trade loss for COCOM countries collectively is: (I)
19,838 jobs; (II) 39,646 jobs; and (III) 79,322 jobs.
Countries hardest hit among COCOM would be Germany, France, Italy
and. Japan, both in terms of trade and job loss.
Methodology
0 e following describes the methodology used in estimating the
onomic effect of the three options for tightening security
controls on exports to the USSR.
For an approximation of the order of magnitude of "high technology
exports" to the USSR, the commodity categories (SITC basis) listed
in Table I were selected. There is general agreement that this-list
encompasses virtually all U.S. and allied high technology exports.
COCOM exports in these goods to the USSR in 1979 totaled $1.7
billion. This figure understates the importance of such technology
transfer trade to the USSR since it does not include the value of
technical data transfers, except to the extent that it is included
in the price of the product export. Conversely, it overstates the
amount of high-technology trade since the categories are broad and
include some low-technology items in the baskets.
The principal economic effects on the west from tightened controls
would be reductions in (1) income from exports related to stricter
COCO'% controls and (2) employment associated with the reduced
exports of technology (either as technical data or equipment). In
order to estimate the possible economic impact of the policy
options, the following assumptions were made:
is
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(1) COCOA exports of high technology products to the USSR would
fall by 25?% from 1979 levels (pre Afghanistan) under Option I;
(2) COCOM exports of high technology products to the USSR would
fall by at least 50% from 1979 levels under Option II;
(3) COCOM exports to the USSR of high technology products would
be eliminated under Option III.
The trade and employment effects for the COCOM countries (except
Greece, Portugal and Turkey) are summarized in Table 2.
The bulk of the reduced trade falls on the key industrial nations,
e.g., Germany, Japan, France, and Italy. German exports of high
technology products to the USSR would be affected within a range
from about $150 million to slightly more than $600 million depending
upon the option. The effect on Japanese exports falls within a $80
to $325 million range for the three options, while French and
Italian exports affected range from $60-250 million 'and $50-200
million, respectively. The corresponding employment effects range
from a high of from 5,000-20,000 in Germany to 3,000-11,000 in
France. Both the United Kingdom and the United States are affected
less than the other four countries (see Table 2). Impact on the
remaining COCOM members is slight, both in trade and employment
erms.
'he trade and employment effects are estimates from a 1979 base and
are believed to be reasonably indicative of the impact of the three
options. Even if the figures were off by a factor of two or more,
due to a particularly large project in any given year, employment
and trade effects for COCOM as a portion of total trade and
employment would remain small. This seems particularly unlikely
since the Soviets tend to import to make up shortfalls in productin
or for reverse engineering purposes.
It is not surprising that the European nations and Japan are most
affected by tighter controls. What is surprising is the relatively
modest impact of either Option I or II on total trade or employment
which seems to suggest that the economic trade off for tighter
national security controls vis-a-vis USSR might not be as difficult,
once it is defined, as sometimes suggested. Indeed to the extent
that high technology products are capital vs labor intensive the
employment impact may be overstated.
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'1MLs 1
?
G OUP/S ITC=
HIGH TECHNOLOGY PRODUCTS
DEFINITIO1;
Aerospace
71142
7341
73492
CorrnDuters
7142
7143
71492
Machinery
7116
7151
? 71523
7185
71852
71911
7192
71952
71954
7197
7199
7290'
Electrical
?
7249
72911
7293
72952
Jet and Gas Turbines for Aircraft
Aircraft, Heavier-than-air
Parts of Aircraft, Airships, etc.
Calculating and Accounting Machines, etc.
Statistical Machines - Cards or Tapes
Parts of Office Machinery, N.E.S..
Gas Turbines, Other than for Aircraft
Machine - Tools for Working Metals
Gas-operated Welding, Cutting etc., Appliances
Mineral Crushing etc, and Glass-working Machinery
Machinery and Appliances-non Electrical - parts
Gas Generators
Pumps and Centrifuges
Machine - Tools for Working 17ood, Plastics, etc.
Parts and Accessories of Machine - tools
Ball, Roller or Needle-roller Bearings
Parts and Accessories of Machinery, N.E.S.
Electro-mechanical Hand Tools
Telecommunications Equipment, N.E.S.
Primary Batteries and Cells
Thermionic Valves and Tubes, Transisters, etc.
Other Electrical Measuring and Controlling
Instruments
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SUMMARY OF' TRADE AND EMPIAYMENT EFFECTS
(Strengthened Security Controls on I119h Technology Exports to 11SSR)
To t a 1
Lnbor
Unemploy-
111gh-Tech Trade
Employment (Loss)
Trade
Fcrce
ment
(Cosa) _
111
-Tech _,-_
C, I tI
j$ flil
)iUT
(1)
I II 111
1
11 111
($M11)
)
-----
1411 -----------
--.-...._-
(Persons)
--_--_
Ium'
1d-I
250
56
4.5'
6.5
2.2
4.5 0.9
1011?
200'
3754
112,316
g
ll
k
,
14
611
2
7'
5.5'
3.0
6.0 12.0
155?
275'
600'
50,927
en,xar
F
,
700
100
.
22.5
5.9
62.2
124.4 240.7
2.812
5,625
11,250
502,376
rance
Germany
,
090
171
25.9
3.0
153.2
306.4 612.0
5,2112
10,425
20,050
761,008
Ite
I
,
230
72
22.0
7.5
52.3
104.7 209.3
3,552
7,105
14,211
324,050
.
y
IleLI,erlands
,
63
670
4.0
4.5
1.2
2.4 4.8
30
76
153
149,917
toot %,,,
,
410
13
1.9
2.0
1.5
2.9 5.9
62
125
251
44,477
y
(hired Kinyd.)m
,
91,016
26.0
5.1
22.7
45.3 90.7
1,496
2,992
5,905
393,930
291.3
596.6 1,193.1'
13,421
26,821
53,675
21 347,009
Canada
190
50
11.3
6.7
5.0
11.6 23.1
294
508
1,176
222,212
00
11,Ii led States
,
101,002
102.9
5.7
36.9
73.8 147.7
1,603
3,207
6,414
2,360,0
Totai North America
239,992'-
114.2
1,09
33,795
7,590
2,591,012
9,020
10,057
1,010,906
422.5
045.0 1,609.9
19,030
39,646
79,322
5,9.19.007
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SECRET
POLICY OPTIONS PAPER
?
Controls on Export to the USSR of Oil
and Gas Equipment and Technology
ISSUE: What policy should the United States adopt on
controlling oil and gas equipment and technology exports
to the Soviet Union? Should the United States treat Soviet
oil and gas development and exports to Western Europe as a
national security concern?
APPROACH: The Administration's decision on this issue
should take into account:
the extent to which we wish to impede Soviet energy
development and exports;
the political costs vis-a-vis our allies we are willing
to pay in pursuit of this policy; and,
-- the extent to which we wish to control export of technology.
In order to make those options that restrict energy
exchange with the Soviet Union both effective and equitable,
the U.S. should present a substantial incentives package
which will contribute to Allied energy security. Such a
S package should aim at increasing alliance access to additional
sources of energy and at furthering sustained Alliance
cooperation on energy security concerns.
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Option I:
The U.S. will actively impede Soviet oil and gas
production and export projects. The U.S. will impose
national security controls on, and deny exports licenses
for, all oil and gas equipment and technology. We will use
our available leverage to pressure our allies and friends to
adopt similarly, restrictive measures.
(a) Hinders development of a strategically significant
industry which is a key component of the Soviet's military-
industrial base. Insofar as oil and gas production is an
instrument of Soviet domestic and foreign policy, we should
actively impede the Soviets' economic strength, political
influence and military potential.
(b) Diminishes Soviet ability to earn hard currency
thtough energy exports to the West. Frustrates the Soviets'
professed aim to acquire Western technology. Promotes
increased competition between the military and civilian
sectors.
(c) Discourages European dependence on Soviet natural
gas, thereby avoiding 'a potential weakening of NATO Alliance
cohesion.
(a) Experts disagree on whether, without Allied cooperation,
an embargo would have a significant effect on Soviet energy
production, and on Soviet ability to pursue major export
projects including the Siberian pipeline.
(b) Would strain US and Allied relations. Europeans
would view US action as insensitive to their economic and
energy needs. This would contribute to long-term Soviet
objective of driving a wedge between the US and our NATO
Allies and Japan.
(c) Hindering Soviet energy development could prompt
further Soviet adventurism or efforts to increase their
influence in the Middle East.
Option II:
The US will attempt to impede Soviet oil and gas
production and export projects. Recognizing that our Allies
and friends may not follow suit without unacceptably high
political costs, we will use less leverage than in Option
I. We would consider, after consultations with our Allies,
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adopting a multilateral approach less restrictive than
implied in Option I. Until this is worked out, the US will
deny export licenses for technology and equipment.
Retains the basic benefits of Option I, but is more
flexible and thereby avoids straining relations with Allies.
Contains same drawbacks as Option I, but additionally
may indicate less US resolve to limit Soviet energy developments.
Option III:
The US is most concerned about major Soviet projects
which contribute to Soviet production capability and our
Allies' vulnerability to Soviet energy leverage (e.g., West
Siberian Pipeline). The US will make a major effort with
other countries to restrict exports of equipment and technology
for such projects. Until this is worked out the US will
deny.all technology and end-use equipment exports for major
projects while approving end-use equipment exports not for
major projects.
(a) Would focus US leverage on major projects.
(b) More likely to be accepted by Allies because it is
more closely related to Western security concerns.
(c) Offers commercial benefits to US and Allied
exporters in areas not of major security concerns.
Con:
(a) Difficult to identify discrete major projects or
to prevent diversion of mobile oil/gas equipment. Opportunities
for leverage may therefore be limited to those items which
are essentially stationary, such as pipe, wellhead assemblies,
down hole equipment, and compressors.
(b) Effectiveness would be limited unless Allies agree
to restrict comparable sales of technology and equipment to
the Soviets. To the extent Allies fail to cooperate,
compromises Western security.
(c) Denies possibility to US companies of participating
in major Soviet oil and gas related trade opportunities.
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Option IV
Rather than attempting to impede oil and gas production
and exports, our goal will be to deny exports of technology
that allow the Soviets to replicate advanced Western
equipment; this technology would give them an independent
capability to improve oil and gas output and infrastructure.
The US will approve exports of end-use equipment.
(a) Hinders Soviet energy independence by impeding
their efforts to develop technological capabilities.
Denying certain critical equipment and expertise in conjunction
with our Allies could also retard Soviet oil/gas production,
distribution, and exports.
(b) Reduces possibility of confrontation with Allies.
Would permit continued European purchases of Soviet energy
which acts as a hedge against dependence on Middle Eastern
oil and gas from less reliable suppliers.
(c) Encourages some Soviet dependence on imports of US
equipment and contributes positively to the US balance of
payments.
(a) Increases European reliance on Soviet energy,
which, regardless of any safety net, could to some extent
make our Allies more vulnerable to Soviet pressure.
(b) To some extent, supports inefficient Soviet
civilian sector by giving USSR access to equipment it
chooses not to develop, thereby perhaps facilitating resource
allocation to the military.
(c) Prevents US companies from competing for some
Soviet oil and gas related trade opportunities, and creates
disincentives for the Soviets to seek US imports.
Option V:
The US will lift special foreign policy controls on the
export of oil and gas technology and equipment. (Existing
strategic controls under COCOM will remain in place, some of
which may incidentally cover equipment and technology for
oil and gas production and exploration).
(a) Promotes the expansion of world energy supplies
and helps reduce pressures on Free World oil prices, thereby
aiding Western economic growth.
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POLICY OPTIONS PAPER
iUS Position on the Siberian Pipeline
ISSUE: What position should the U.S. adopt towards the
proposed pipeline designed to supply Siberian natural
gas to Western Europe?
OPTION I
The U.S. will signal its disapproval of the project by
denying all exports to the USSR for the pipeline, and press
our allies to cancel further project negotiations.
?
(a) Heads off potential Western European dependence on
Soviet energy supplies, reducing the likelihood
for Soviet leverage and European vulnerability.
(b) Indicates unambiguously that the U.S. is deter-
mined to hamper development of a strategically
significant Soviet industry by denying the
equipment and expertise to accelerate development
of Soviet gas reserves, the most readily available
means to replace hard currency earnings from
declining oil.exports.
(c) Contributes to Soviet economic difficulties by
promoting resource allocation debate between
Soviet military and civilian sectors.
(a) Creates tension between the U.S. and its Allies
and could contribute to the long-term Soviet
objective of separating the U.S. from Western
Europe. Severely limits U.S. ability to influence
the details of the project and the safety net
should the Europeans proceed despite our objections.
(b) The Western Europeans are committed to the project
and could likely proceed despite U.S. opposition,
unless the U.S. were prepared to apply leverage
at the highest levels and to offer an "incentive
package" to offset the Western European loss of
potential energy supplies and related export
contracts from the USSR.
(c) Experts disagree on whether, without Allied
cooperation, an embargo would have a significant
effect on Soviet energy production, and on Soviet
ability to pursue major export projects including
the Siberian pipeline.
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(b) Provides fewer incentives for the USSR to adopt an
adventuristic policy towards the Persian Gulf and other oil
producing regions.
(c) Promotes Soviet dependence on US imports and
contributes positively to the US balance of payments.
(a) Signals our Allies and the Soviets that we are
less concerned than before about Soviet policies.
(b) Supports inefficient Soviet civilian sector by
giving USSR access to equipment and technology it chooses not
to develop, thereby facilitating resource allocation to the
military.
(c) Contributes to continued Soviet energy supplies to
Eastern Europe.
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OPTION II
The U.S. will communicate to our Allies and friends
that we oppose the project, will withhold relevant export
licensing, and encourage them to do the same, until our
Allies have committed to constructing an adequate safety net
of emergency supply.
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(a) U.S. would appear sensitive to Western European
economic and energy needs and their desire to
diversify energy supplies. Avoids possibility
(a) Indicates U.S. concern about major Soviet projects
which contribute to Soviet energy production
capabilities and our Allies' vulnerability to
Soviet energy leverage.
(b) Offers U.S. more time to encourage Europeans to
derail, delay or scale-down the project, and to
work with them to explore alternate energy sources
and an emergency safety net.
(c) Heads off increased Western European dependence
on Soviet energy supplies and reduces the likeli-
hood of Soviet leverage.
(a) U.S. might appear to be waffling. Does not clearly
indicate to our Allies the degree of U.S. concerns
regarding the strategic implications of expanded
European dependence on Soviet energy.
(b) Contributes to the development of a vital sector
of the Soviet economy, thereby enhancing Soviet
economic strength, political influences, and
military potential.
(c) Even with a safety net, the pipeline would expand
East-West trade links and could reduce Western
European willingness to actively oppose the Soviets.
The U.S. recognizes its inability to cancel or signifi-
cantly delay the pipeline project. The U.S. will, however,
work with its allies and friends to minimize the strategic
implications of th"roject.
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of straining relations with these Allies, who
are committed to the project but are cognizant
of the need to develop a safety net. U.S. leverage
could be used to influence further the details
of the project and safety net.
(b) If Europeans scale back the pipeline sufficiently
and develop adequate safety provisions, the
West's leverage as a unified buyer could exceed
that of the USSR as a seller.
(c) Promotes expansion of world energy supplies
and alleviates European dependence on OPEC
resources Also reduces possibility of
economically-motivated Soviet adventurism
in the Middle East.
ja) Sends an improper signal to our Allies and to
the Soviet Union regarding U.S. views toward
the USSR, and implicit U.S. acceptance of Western
exports for the development of Soviet energy
resources
(b) If an adequate safety net is not developed,
allows possibility of Soviet political leverage
over six Western European countries, and reduces
likelihood of European opposition to the USSR on
key international issues.
(c) Provides for continued, high level of Soviet hard
currency earnings which could range from $5-15
billion annually, thereby making it easier for
Soviet leaders to allocate resources to the military
sector..
Adopt a laissez faire approach on the pipeline, allowing
market considerations to determine European energy import
and energy security policies.
(a) Avoids friction with key Allies on East-West energy
relations.
(b) Reduces Soviet energy incentives for adopting an
adventuristic policy towards the Persian Gulf and
other producing areas.
(c) Enables U.S. firms to compete for commercial
opportunities generated by the project.
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(a) Signals to our Allies and the Soviets that we
are less concerned than before about Soviet
policies and enhances Soviet ability to manipulate
commercial relations to their political advantage
over the longer term.
(b) Increases European dependence on Soviet energy and
weakens Allies' ability to resist Soviet pressure.
(c) Supports inefficient Soviet energy sector by
giving USSR access to equipment and technology
it chooses not to develop, thereby easing
resource allocation to the civilian sector.
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POLICY OPTIONS PAPER
License for Caterpillar Company
To Export 100 Pi elayers to the Soviet Union
ISSUE: Should the United States Government grant a license
to the Caterpillar Tractor Company for the export of 100 pipe-
layers to the Soviet Union?
BACKGROUND: The Carter Administration in 1978 imposed license
requirements on the export of oil and gas technology and equipment
to the USSR, and tightened controls following the Soviet invasion
of Afghanistan. These controls are based on foreign policy con-
siderations, and have not been adopted by our Allies and other
equipment and technology exporters. Prior to the imposition of
controls Caterpillar sold over 900. pipelayers to the USSR.
On November 15, 1980, the President directed that a license
be approved for Caterpillar to export 200 large-diameter pipelayers,
valued at $79 million, to the Soviet Union for use on the con-
struction of a gas pipeline linking West Siberia and six Western
European countries. On January 26, 1981, Caterpillar requested
an amendment to that license. The amended application seeks
approval of a license to export 100 pipelayers, valued at
$40 million, for use on Soviet petroleum projects other than the
Iberian pipeline. The amended application states that the 100
ipelayers would be used as replacement units on the following
projects:
-- 30. units for use in West Siberia on construction of
main and feeder lines of the Urenjorj project to carry gas from
West Siberia to Moscow;
-- 25 units for use in Central Asia on construction of
a local oil pipeline;
-- 45 units for use in European USSR on the western
end of the Urenjorj project from Yaroslavl to Polotsk.
The amendment request was circulated for interagency
review on March 4, 1981. Commerce, in circulating the case for
review, recommended that the license, if approved, contain the
condition that no military or military-support use of the pipe-
layers be permitted, and that an end-use statement to that effect
be required. The case was subsequently discussed without
agreement at the Assistant Secretary level in the Commerce-
chaired Advisory Committee on Export Policy.
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Under the time limits for licensing decision set forth in the
Export. Administration Act of 1979., the Government has until early
August to decide this case. However, Caterpillar has already
missed contract delivery deadlines and feels that it must have
an early decision in order to prevent Soviet cancellation of the
contract, and consequent Japanese replacement sales to the USSR.
Komatsu, a Japanese firm, is currently the only non-U.S. producer
of pipelaying equipment and has sold over 500 pipelayers to the
USSR in the past ten years.
OPTION I
Deny the Caterpillar export license application.
PRO
(A) Reduces Soviet capability to carry out oil and gas
projects with long range strategic implications. Impedes Soviet
economic strength, political influence, and military potential.
CB) Despite end-use assurances, inherent fungibility of
pipelayers means that they could be used in developing Soviet
military,infrastructure.
(C)' Signals that. US desires to inhibit Soviet energy
production.
(D) Denies USSR access to equipment it chooses not to
develop, facilitating resource allocation to military sector.
(Al Without cooperation from Japan, US license refusal
would have no appreciable effect because Japanese could supply
pipelayers.
(B). Pipelayers have no clear cut military application and
their relation to enhancing Soviet military capability is tenuous.
(C) Possibility that Caterpillar and other US firms will be
denied opportunity for future sales the U_- Key Congressional
leaders Percy and Micher support sales: -
(D) Given US lifting of grain embargo, US refusal of export
license could appear inconsistent.
SECRET
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