HOW TO EMBARGO RUSSIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R001403390008-9
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 3
• Document Creation Date: December 20, 2016
• Document Release Date: October 1, 2007
• Sequence Number: 8
• Publication Date: July 17, 1982
• Content Type: OPEN SOURCE

Approved For Release 2007/10/01: CIA-RDP84B00049RO01403390008-9
a
Urengoi in Siberia to West Germany, France and other--- 1971 did good once the pieces had been picked up. The
west European countries will earn the Soviet Union,
after servicing debt on the project, hard currency worth
anything from $5 billion to $10 billion a year-from 1985
onwards. The lower of those two figures will mend
Russia's stretched balance of payments to the tune of
Russia's entire present earnings of hard currency from
its sales of armaments and gold. The higher figure of
$10 billion a year would be' enough to replace the bulk
issue now is not the huge-in our view undesirable-=
pipeline itself. It is the utility of promoting or restrict-
ing east-west trade as such, and the question of -which
bits should be promoted and -which restricted. If.
America and its allies cair get down to fundamentals,
more might be achieved than by America misguidedly
trying to bottle up each genie when it has already
escaped from the bottle.
of Russia's present foreign currency earnings from its: Principle one. General east-west trade, even inflated
largest but increasingly scarce and shaky export re-
source, which is oil.. .
as it was during the 1970s, is of little overall value to the
west: it accounts for less than 2% of gnp in most
western countries. Fuels apart, what comes in the form
That is the main reason why President Reagan's
administration in Washington chose to cause fury
to stop them building the
among its allies by trying
pipeline to carry the gas- The lesser reason is concern
about increased west European dependence on Soviet
energy. Last year 15% of western Europe's gas supply
came.from Russia. In two of the past three years both
Austria and West Germany have at some moments had
to-suffer 50% cuts in gas supply from Russia because of
cold weather and other--non-political-supply difficul-
ties.: The Urengoi line now stands to increase that
of bottled stewed fruit and caviar is not vital. If any z
elementary Ricardian division of labour were applied in . _:
the communist world, in the place of its extravagant 'I I
export subsidies, much of -the rest that is sent to the.-.
west would not be sellable at its full cost price anyway.. Principle two. The same is true in Russia. The
smaller your estimate of Russian gnp (if such a thing
can ever be measured in western terms,_see page 45)
the bigger the proportion you can claim is accounted
for by foreign trade. But, except for grain, the whole
aependence by half in agegate, and by much more in Soviet Union is organised to operate, if need be, as a.
may bepolitical .'-z.- ^: -` '-c' -r _ - Principle three. Both Russia and the west are vuIner-'r te.
able to cut-offs in east-west trade precisely because that
h
h
i
f b
i
gainst all this, the West Germans and other Europe-
A-
ans argue that their dependence on Soviet energy will
still be less than choking, particularly since -they are
taking steps through Europe's gas grid to mitigate it;
-and that Russia will expand its hard-currency commit-
ments - to eastern Europe and beyond to match any
extra freedom of action that a sudden dollop of gas
money is likely to bring it. They add-and here they are
certainly right-their pipeline contracts with Russia
had already been signed when Mr Reagan stamped his
foot. He is trying to compel American companies and
their licensees to renege on perfectly legal contracts. .
The shock that President Reagan has administered to
his European partners over the pipeline can be made
worthwhile only if one thing happens: if the much wider
issue of east-west trade as a whole is at last tackled
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ot
t
e
ns o
r econo-
trade takes place at the.marg
In deep recession the margin of any western
mies.
economy is where it hurts: when big bits of AEG are
already going bust in West Germany, loss of a pipeline
from Urengoi can make the difference of yet more
thousands of AEG jobs lost or kept. In a Russia where
the military budget pre-empts the best people and the
best factories, and inefficiency squanders much of the
rest, it is the marginal western-provided beef, bread,
1970-model Fiats, Levi jeans, Pepsi Colas and Pink
Floyd that help to keep people quiescent. Both sides
can survive without east-west trade; neither side wants
to. That is what gives both sides their increasing
leverage over the other. So:
Conclusion one: be ready to keep general east-west
trade going only wherever security and political aims
are not threatened. At its margin, east west trade may,
 Approved For Release 2007/10/01
over decades, tend slightly to relax the bureaucratic
stranglehold of the party priviligentsias in the commu-
nist world. But it is at best a glacial progress, and
should not outweigh the use of trade and credit, when
needed, as part of the west's armoury against its
communist adversary.
Conclusion two; do not subsidise your prices or your
credits to Russia and eastern Europe by one jot..If you
do, as westerrr banks are belatedly discovering, all you
will have achieved is an eventual threat of bankruptcy
against yourself. Governments: do not underwrite
cheap credits with taxpayers' guarantees.
Conclusion three: by a strict policy of lending only to
bankable risks, be ready to force Russia to underwrite
the credit of its satellites. That will open more market
: CIA-RDP84B00049ROO1403390008-9
doors in the east than gift-lending that simply props up
the existing system (as in Poland) until it explodes and
then has to be even more repressively reconstructed.
Conclusion four: reinforce Cocom, the gentlemen's-
agreement committee in Paris which vetsand vetoessales
to communist countries of munitions, atomic materials
and related industrial-commercial products. Technology
is moving so fast that Cocom needs a staff of scientists and
engineers operating a constant review system (not long,
inflexible lists) under political supervision. Snag to be
removed: at present any Cocom member can veto an
embargo, so make majority voting mandatory.
Conclusion five and most vital: trade and financial
sanctions rarely stop trade, but they often hamper it---
and that may sometimes, and at a cost, work as a
A deal on . west-west trade
The -disagreement between the United steel bail-outs, and now most of the ? " The Americans are. right to-complain
States and western Europe over trade subsidies are being used to pay sacked about this, particularly as fanners' in-
with the communists is compounded by workers' redundancy payments and to comes in the United States have just
a series of west-west, American-Europe, slim the industry. In the past six years fallen by more than in any year in the
rows over their own trade. The loudest EEC steel firms have sacked-25% of . past half-century. It is no good for the
-
arguments at the moment are about their workforce. This ought to be wel- EEC to point out that it still imports $29
exports of steel and food from the EEC, corned, not penalised, by the billion more food than it exports. If the
which the Americans say are unfairly Americans. laws of comparative advantage were giv
subsidised. Besides, the Americans provide dis- en free rein, the EEC would import far
Such disagreements are not- new. It is guised subsidies for their own steel pro- more. The Europeans are on better
inevitable that the world's two biggest ducers, through the trigger-price system, ground when they point out that the
and most liberal trading entities should which has stopped cheap steel imports Americans are increasingly subsidising
constantly argue about the rules govern- that undercut American prices. The only their own fanners; but this is partly just
ing their $500 billion worth of world difference is that the American steel a reaction to European subsidies.
trade each year. High unemployment on industry is mainly subsidised by steel What is the best way to forestall a full-
both sides of the Atlantic has sharpened consumers paying higher prices rather scale trade war? Clearly not by another
the quarrel, because it has increased the than by government handouts Negotia- blurry summit of presidents and prime
power of protectionist lobbies. tors are now trying tp work out a deal to ministers. The Gan ministerial meeting
It is important that both sides should restrain EEC exports, but the excessive in November would be a better occasion
try to calm the dispute before it boils demands of American steel fines-they for trying to tie up a package deal on the
over into the trade war that has long want to cut the EEC's market share most awkward issues. America's trade
-been expected but has never actually back, rather than just freeze it-are representative, Mr Bill Brack, hinted at
taken place. This should have been the blocking their path. such an approach when trade officials
purpose of last month's seven-country When it comes to agricultural trade, from America, Europe and Japan met in
western economic summit at Versailles. the boot is on the other foot- Europe's May. He told his colleagues that, unless
Instead, the summiteers spent their time" protectionist common agricultural policy they were prepared to make, conces- -
pulling wool over each other's eyes on has long-and rightly--been the cause sions, he would find it hard to divert the
other subjects. Both Americans and Eu- ?- of-American fury. In the last round of -.-wave of protectionism washing through
.ropeans agreed not to look closely at the = trade-freeing- Gait- negotiations, the congress in Washington. An old gambit,
t.., other sides ideas about the economic Americans decided that they had no but a sensible one. _ . = -- - - :.`.?.
rs}ati atishig with Russia. President Rea- chance of persuading farm-vote-loving . _,-The Americans could promise- to lih
gars failed to make it dear what he would `'.- European governments to agree to radi-.. 7 'their duties on European steel exports, if
? F' 'do about the"gas pipeline-front Russia if`'' :cal- changes.- But the "Americans did the Europeans agreed to stick to their ?-==
hase out subsidies when the
t
i
i
o p
t prom
se
? he did not: get his way on that wider-...:.:extract a promise from the EEC that
and its share of world present round of steel-mill closures. is
t ex
?
ld
p
no
~; .,t;:.?:,_.,..,_~.,~ w; wou
sue.
at the Americans'. expense, by over (meantime a quota could be negoti-.: --
trade
n tocorn-
i
h
Th
A
,
.
ave reaso
cans
mer
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plain about certain European subsidies. dumping even more of Europe's food ated). And the Europeans could prom-
That is not sufficient reason-for them to mountain outside its "traditional ise to freeze their-spending on food-
impose protectionist tariffs, since these markets". - export subsidies, and not to introduce
are merely another way of subsidising The Europeans . have flagrantly new protective measures against Ameri-
their own producers. Yes, the European broken that promise. They have encour- can products like corn gluten (a cheap
steel industry is subsidised. But, no, the aged a huge expansion of subsidised substitute for animal fodder which is
American commerce department'- ded- exports of European farm goods like undercutting Europe's over-priced feed
sion last month to slap duties of up to beef, sugar, dried milk, poultry and- grains).
40% on EEC steel imports was not the most worryingly for the United States, The new slogan-for transatlantic bar-
right response, because it failed to take the world's breadbasket nation---core- mony should be: we will stand up to
into account what the EEC is doing to als. Last year, the EEC became a net ' our lobbies if you will stand up to
put things right. The EEC governments exporter of cereals for the first time yours'- The best way to save jobs is to
have at last begun to mend their ways on ever. outlaw "job-saving" protectionism. ?
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 terrent against invasions of Afghanistan and
l d
lin
e
ea
,
l laws in-Poland provided the sanctions are (a)
ti
a
...ar
be applied (b) not just by one western.
t
i
o
certa
n
country but by all. The sanctions after Afghanistan did
help postpone the clamp-down in Poland. They sent
the west to
f
i
ng
orc
signals that such Soviet actions were
walk backwards down the road to detente. Likewise,
America's grain embargo was starting to :hurt when it
was withdrawn by president Reagan. But the grain and
d such
h
h
a
more
other. sanctions would have hurt muc
friends as Argentina, Canada, Australia and Europe
not filled the gap..: ate. ? _. = = ::
w-That fifth conclusion-.-if you cannot introduce sanc-
Approved For Release 2007/10/01: CIA-RDP84B00049RO01403390008-9 ; key to
-
J
bons in umsuu, ju
present and past west-west disputes over east-west
trade. Mr Reagan's men are probably right to argue for
sanctions to discourage more Afghamstans. They are
probably right to discourage outsize projects that give
outsize benefits to an economy whose biggest single
sector is devoted to building means to intimidate the
free and third worlds. But the Americans would now
also be right if they were to trade in their belated
pipeline embargo in return for a real and combined
western arrangement to outlaw cheap credit and to
police hi-tech and big-ticket-trade deals..That is what
achieve
d t
.
o
? the pipeline shock shouid be use
Approved For Release 2007/10/01 : CIA-RDP84B00049RO01403390008-9