ATTACHED TALKING POINTS ON THE US-USSR JOINT COMMERCIAL COMMISSION MEETING SCHEDULED FOR MAY 20-21 IN MOSCOW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00759R000100050002-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 35
• Document Creation Date: December 22, 2016
• Document Release Date: June 24, 2010
• Sequence Number: 2
• Publication Date: April 25, 1985
• Content Type: MEMO

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SECRET
NOFORN
The Director of Central Intelligence
Washington, D.C. 20505
National Intelligence Council
NIC 02177-85
25 April 1985
MEMORANDUM FOR: Director of Central Intelligence
Deputy Director of Central Intelligence
FROM: David B. Low
National Intelligence Officer for Economics
SUBJECT: Attached Talking Points on the US-USSR Joint
Commercial Commission Meeting Scheduled for
May 20-21 in Moscow
1. Attached are the subject talking points. They are based on six
recent papers by OSOVA and OGI as well as other current intelligence.
They have been reviewed by analysts from those two offices and discussed
with the NIO/USSR.
2. As I discussed with you this morning, these talking points were
developed in the context of an anticipated initiative by the Commerce
Department to expand the kinds of oil and gas equipment which might be
exported to the Soviet Union by the United States. However, under the
present circumstances, including Gorbachev's recent tough comments and
the Soviet statement on the Nicholson killing, Secretary Baldridge has
retreated from proposing any such initiative. Thus, Commerce is relying
on and will act in accordance with NSDD 155 dated January 4, 1985 in
which it is stated:
"To avoid sending inconsistent signals to the allies and the
USSR, US oil and gas equipment sales should not be an area in
which the US should agree to an active program of trade expan-
sion pending further policy clarification by me (the President)."
Accordingly, the NSC meeting scheduled for Friday has been cancelled.
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SECRET
SUBJECT: Talking Points on the US-USSR Joint Commercial Commission
Meeting Scheduled for May 20-21 in Moscow
3. The question at Saturday's meeting will be the circumstances
under which the JCC meeting should be allowed to proceed, if at all.
This makes moot for the time being the substantive question of expanding
US exports of oil and gas equipment and focuses attention on the politi-
cal environment and the kind of signal the Administration wishes to
convey. _
Attachments:
A. The May 1985 JCC and the Soviet Agenda
B. Western Technology and Equipment and Soviet Energy
C. Background on Energy Projects Requested by Moscow for
JCC Discussion
D. Future Declines in Soviet Oil and Gas Earnings
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SECRET
NOFORN
25 April 1985
THE MAY 1985 JCC AND THE SOVIET AGENDA
The ramifications of the May 20-21 meeting of the US-USSR Joint
Commercial Commission--the first in six years--will be more political
than economic.
-- Although generally disappointed with the contributions to their
economy of Western technology and equipment, the Soviets
continue to hope for economic benefit in obtaining US technology
and goods.
More importantly at this stage, they view increased trade with
the US as a necessary adjunct to a general normalization of
relations and as an opportunity to gauge US commitment to
normalization.
Accordingly, Moscow probably expects the US to show some flexibility
in these talks. At the same time, the Soviets probably do not expect
substantial progress on key issues.
The Soviets hope that the prospect of increased trade will cause
affected US businessmen to urge the US Administration to avoid
policy decisions that Moscow would view as hostile (such as
stronger COCOM controls) and to adopt conciliatory positions on
broader issues such as arms control.
Some Soviet statements to US businessmen strongly suggest that
the two issues of arms control talks and renewal of US-Soviet
trade talks are closely linked in the minds of the Soviet
leadership.
While Moscow already has concluded, and will continue to conclude, a
few contracts to US suppliers, economic realities constrain any rapid
growth in bilateral trade over the 1985-1990 period.
Moscow has developed alternative suppliers in Eastern and
Western Europe to reduce dependence on US goods.
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SECRET
NOFORN
SUBJECT: The May 1985 JCC and the Soviet Agenda
The Soviets will have a smaller capacity for hard currency
earnings, at least through 1990, as a result of stagnant or
falling oil production.
-- Moscow will be selective in its equipment imports because of
past problems in productively assimilating Western technology.
Despite technical advantages in some product areas, US firms would
not likely see a large rise in sales absent government restrictions until
overall relations with the USSR improve.
-- In FY 1983 and 1984 export licenses in preparation for bidding
on Soviet projects were granted for $356 million in US sales.
-- Commerce Department can only confirm $2.6 million in shipments
over the period although the total may be in the range of $6 to
$10 million. This presumably reflects the Soviet
"black-listing" of US firms.
Political considerations aside, favorable financial terms and
the high dollar give West European and Japanese suppliers a
competitive edge in areas where their equipment is nearly on a
par with US quality.
At the January 1985 preliminary meeting between Under Secretary Olmer
and Deputy Foreign Trade Minister Sushkov, the latter stated that, while
the USSR was not expecting major improvements, he felt it would be useful
to see progress on such issues as port access for Soviet ships, bans on
US imports of Soviet furs and nickel, and the refusal to recertify
Aeroflot flights into this country.
The Soviets may be encouraged by such recent acts as the US
government's failure to ban imports of selected Soviet goods on
the ground that forced labor was used in their manufacture, and
the easing of certain COCOM restrictions (on personal computers,
for example).
More serious trade issues such as the granting of MFN status,
the reduction of trade controls on sensitive items or government
guarantees of contract sanctity they understand will probably
not be resolved soon.
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List of Projects Provided by the Soviet Trad Re resentative's Office
Sudoimport
/1. Factory, for the manufacturing of ice-tolerant offshore
y platforms for use in the far east.
.f2. Ice-tolerant offshore platforms for Sakhalin.
/3. Underwater well-head equipment for operating oil and gas wells.
Mashinoim ort
4.
5.
Gas compressor station in Karachagan.
Equipment for the development of Astrakhan gas deposits.
Tekhnopromimport
6.
Equipment for manufacturing denim; capajFity: 60 million square
meters per year.
7.
Equipment for sewing denim articles; caipacity: 20 million
pieces per year.
8.
Equipment for production of non-alcoholic beverages, with
compensation in voloka.
9.
Equipment for?makipg cigarettes, with piprtial compensation
tobacco.
10.
Equipment for the production of baby foffmula (milk).
11.
Equipment for the production of meat-based bullion cubes;
capacity: 125 mil ion cubes per year.
12.
Equipment for the 4Production of meat baby food; capacity:
tons per shift.
42
13.
Equipment for the 4Production of textured soy protein;
capacity: 1200 tops per 24 hour period,
Tekhmashim ort
14.
Factory for the production of acetic acid; capacity:
tons per year.
150,000
15.
Equipment for an amide fiber complex, including raw materail
production; capacity: 66,000 tons per year.
3
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Soviet project list (continued) 2
16. Equipment for the Production of linear polyethylene.
17. Equipment for the production of vinyl-cyanide (acrylonitrile).
18. Equipment and technology for production of the herbicide
"Bazargan; " capci t)r: 6,600 tons per yejlr.
metal Iurgimport
19. Self-prore1led bor;jng rigs used in mining.
Prommash impor t
20. Glass-shaping lines for manufacturing perfume bottles in the
.2.-.3 liter size ronge.
21. Equipment for the production of water bottles.
22. Equipment for the production of crystal goblets and glasses.
23. Equipment for the production of milk casttons.
24. Equipment for the production of plaster slabs.
25. Equipment for making, concrete slabs and 'blocks from cement and
from crushed marble.
26. Equipment for the production of pre-faba,icated, transportable,
spherical, vegetabate storage containers,
27. Factory for produc;Rng fire-proofing.
28. Equipment for the production of cement fipy dry method.
29. Equipment for making cartons from cardboard.
30. Wood finishing equ;lipment (millcutting lines), specifically for
putting together e;Ktra-.long pieces.
31. Equipment for the production of compressors for home
refrigerators.
32. Criss-cross stitch;Gng equipment.
33. Equipment for producing oversized plywood; capacity: 50,000
cubic meters per year.
April 9, 1985
4
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SECRET
NOFORN
ATTACHMENT B
25 April 1985
WESTERN TECHNOLOGY AND EQUIPMENT AND SOVIET ENERGY
Background
The USSR is the world's leading producer of oil and natural gas. By
1970, oil had displaced coal as the dominant fuel in the Soviet energy
balance, and we anticipate by 1990 natural gas will account for the
largest share of the USSR's primary energy production.
Oil output slipped to 12.3 million barrels per day last year, down
about 100,000 from 1983--the first year-to-year decline since WWII.
-- The falloff is due primarily to the advanced age of most of the
largest oil fields.
-- We expect an even larger decline in 1985, while investment in
the industry is planned to increase by about 15 percent.
Over the last several years oil production efforts have been
pushed in the near-term to the detriment of needed oil
exploration. Now, at the oldest oil fields in West Sibera,
production per well is down amidst wide-spread equipment and
corrosion problems. The newer fields are smaller and less
productive with increased need for pumps and maintenance.
-- Meanwhile, there have been two waves of management changes in
the oil ministry.
On the other hand, natural gas production has been growing at 7
percent annually, and the outlook for continued growth is excellent.
Coal production continues to stagnate.
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SECRET
NOFORNA
SUBJECT: Western Energy Technology and Equipment and Soviet Energy
The Need for Western Energy Technology and Equipment
Efforts to halt the decline in oil production and to develop certain
new gas reserves will force the Soviets to look to Western technology and
equipment.
-- Oil exploration and development is shifting to deeper deposits,
for which efficient exploitation requires Western exports
including seismic and drilling equipment as well as Western
technology for designing, producing, and integrating this
equipment.
-- The need for Western equipment will be particularly high to
exploit sour oil and gas from high-temperature and high-pressure
deposits in the Pre-Caspian Depression.
-- While the Soviets could continue to rely on indigenous
capability and shift the natural gas efforts to deposits more
easily developed, access to Western technology and equipment
would reduce project development times, cutting some by nearly
half.
Most equipment the Soviets will need is available from non-US
suppliers, although US firms and their affiliates and licensees abroad
are still generally the producers of the highest quality goods in most
areas.
-- US dominance of the worldwide petroleum equipment industry has
substantially eroded over the last ten years.
-- Equipment production capabilities in Western Europe and Japan
have been increasing rapidly over the last few years as they
have invested heavily to participate in development of North Sea
oil and gas.
The United States still maintains a substantial qualitative edge
in certain electronic sensing and data processing gear necessary
for seismic exploration and deep offshore drilling as well as
advanced metallurgical capabilities for high-temperature and
high-pressure corrosion-resistant equipment, for drilling and
production.
2
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SECRET
NOFORN
Subject: Western Technology and Equipment and Soviet Energy
Military Use
Substantial potential for diversion of Western electronics and
metallurgical technology embodied in petroleum equipment to
military-related use is believed to exist in the sale of "high-level"
equipment.
-- Much of the more sophisticated electronics technologies have
broad military-naval applications using image and signal data
processing with realtime analysis for targeting, mapping, and
locating.
The technologies embodied in corrosion-resistant production
equipment and in equipment for high-pressure and high-
temperature operating conditions are applicable to conventional
and nuclear weapons development, marine nuclear propulsion
systems, military rocket and jet engines, and other applications
in armaments.
-- Moreover, the technology used in the matching of components and
technological properties of hardware, as well as the
metal-processing and shaping technology used to manufacture
these items, has the potential to help Soviet military/defense
research efforts.
During the past few years, the United States has developed a
comprehensive policy aimed at stemming the flow of high-quality Western
technology and equipment to the USSR and other Warsaw Pact countries by
expanding and upgrading export controls.
-- A formal US proposal addressing emerging technologies and 21 oil
and gas technology and equipment items was tabled in COCOM, and
several items were accepted for full COCOM control in January
1984.
Partial control was obtained over several other items, and
discussions on the remaining items were temporarily deferred or
dropped.
US national security controls cover essentially the same items
as COCOM while unilateral foreign policy controls cover the
remaining exploration and production items.
3
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'ECRET
S
NOFORN
SUBJECT: Western Energy Technology and Equipment and Soviet Energy
-- While these efforts probably have reduced Soviet access to
clearly "dual use" technologies embedded in Western petroleum
equipment, they have not significantly impeded Soviet efforts to
acquire Western gear needed to upgrade petroleum operations so
far.
Denial of Western production equipment for operation in corrosive and
high-pressure, high-temperature environments would substantially slow
progress in development of the petroleum resources in the Pre-Caspian
Depression and Central Asia.
It would also have serious--but not crippling--consequences for
operations in West Sibera.
Where operations were not halted by a lack of Western technology
and equipment, the myriad of inefficiencies associated with the
use of domestically-manufactured obsolescent equipment of poor
quality would boost production costs and tend to reduce the
percentage of oil in place that ultimately will be recovered.
In any event, the lead time for such projects is so long that
the impact on production would not be significant until the
1990s.
Even under the conditions indicated, the Soviet Union would be able
to supply its own essential needs for oil, including those of the armed
forces.
-- Unilateral action by the United States would have very little
impact.
Concerted action by all COCOM members would slow many Soviet
projects, raise their energy investment costs, and, in turn,
impose costs on other sectors of the economy. In light of
recent US experience in COCOM, however, it is doubtful that
COCOM would agree to any significant further expansion of
petroleum equipment-related export controls.
It is possible that these added costs and delays could, if coupled
with other considerations, promote tactical adjustments in Soviet foreign
policy. But we do not believe these pressures would be sufficient to
force basic changes in Soviet defense and foreign policies.
4
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NOFORNI~ ECRET
FOREIGN AVAILABILITY OF EXPLORATION, DRILLING AND
PRODUCTION TECHNOLOGY FROM NON-US WESTERN SUPPLIERS IN 1985
Exploration Technology
High quality services and good foreign equipment available elsewhere,
particularly France, although US is preferred supplier for
acoustical/ultrasonic sensors and geophysical equipment.
Drilling Technology
High quality services and gear available outside US.
Production Equipment
US equipment is preferred for most "downhole" needs, including
packers, seals, valves, and submersible pumps. Other equipment is
available overseas.
Pipeline Construction
Equipment is available overseas.
Processing and Refining Technology
Equipment for most applications is available overseas.
5
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SECRET NOFORNI
Western Technology and Equipment Likely To Be On
Nbscow's Shopping List During 1985-2000
For Offshore Projects:
a
o Seismic survey boats with simultaneous multi-survey capability using
state-of-the-art earputer hardware and software
o Drilling platforms and rigs (dynamic positioning and reentry
capability)
o Production jackets and modules (ice-resistant nndels)
o Pipeline construction materials, equipment, barges
o Drilling and production equipment and services
-- Drill pipe, collars, tool joints, bits, risers
Instruments for on-line monitoring of all
drilling operations and directional drilling
-- Blow-out preventers and controls
-- Casing, tubing, valves, packers, mandrels, seals
-- Wellheads, trees, valves, flowlines, gauges
(for surface or seafloor installation)
-- Subsea manifolds and gathering systems
-- Submersible pumps, and cables for electric power supply
-- Offshore processing and treating equipment
-- Drilling fluid and mud-logging services
-- Instruments for wellbore coring, testing
For Deep Onshore Projects:
o Onshore seismic surveying equipment (including weight-dropping and
vibration techniques) using state-of-the-art carnputer hardware and
software
o Deep-drilling rigs equipped for severe service
o Sour (H2S and OD2) oil and gas manifold and gathering systems
o Sulfur and carbon dioxide extraction technology
o Sour (H2S and O02) oil and gas processing and treating equipment
o Blow-out preventers and controls for severe service
o Drill pipe, collars, tool joints, bits, and special drilling tools for
severe service
o Instruments for on-line monitoring of all drilling operations and
directional drilling
o Corrosion-resistant casing, tubing, valves, packers, mandrels, seals,
and related chemical inhibitor technology
o Wellheads, trees, valves, and flow lines for severe service
o Deep-purrping equipment (especially submersible pumps and pump rods for
rod-and-beam pumps)
o Gas-lift equipment and compressor stations
o Drilling fluid and mud-logging services
o Instruments for well-bore coring, testing, measuring pressure and
temperature, and logging
This table is Confidential.
6
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SECRET
NOFORN
ATTAC[-IMENT C
25 April 1985
BACKGROUND ON ENERGY PROJECTS REQUESTED BY MOSCOW FOR JCC DISCUSSION
Astrakan' Gas Development
Construction of this deep onshore gas field began in 1983 with stages
II and III worth about $1.2 billion now out for bids. The Soviets expect
the field to produce 18 billion cubic meters of gas sometime in the
1990s. Engineering and management services and equipment for future
construction are generally available from non-US sources. Moscow may
look to the US for "downhole" equipment such as packers and safety valves.
Gas Compressors for Karachaganak
This is a $500 million gas field project including wells, pipelines,
and a gas processing plant; the project is already underway. A second
plant planned for construction will need at least three compressor
stations. Foreign firms and offshore affiliates and licensees of US
firms are capable of supplying the services and equipment for future
development.
Underwater Wellhead Equipment
Moscow will likely step up development of offshore Caspian Sea oil
and gas over the next five years. US firms and subsidiaries are
preferred suppliers of subsea wellhead equipment, but Norwegian, French,
and British companies are prepared to enter the market.
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S
NOFORN
SUBJECT: Background on Energy Projects Requested by Moscow for
JCC Discussion
Ice Tolerant Platforms for Sakhalin
Sakhalin development is stalled absent a Japanese commitment to
purchase 3 million tons of LNG annually. Should the project get
underway, three or more platforms could be added in waters 30 to 90
meters deep at an average cost of $100 million per unit. Numerous
foreign countries including Japan and Korea could supply platforms for
this project.
Ice-Resistant Offshore Platform Construction Yards
Platforms from the planned yards would be used in waters of the
Barents', Kara, and Okhotsk Seas. Several West European countries plus
Canada and Japan would be able to supply equipment and construction
services for these yards at cost ranging from $10 to $40 million per yard.
2
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NOFORN
25 April 1985
FUTURE DECLINES IN SOVIET OIL AND GAS EARNINGS
Hard currency earnings from exports of oil and gas will likely fall
sharply over the next five years.
-- Oil production declined slightly in 1984; hard currency oil
exports were maintained primarily by increasing reexports of
OPEC oil obtained by barter.
-- Oil sales account for nearly half of the Soviet Union's roughly
$32 billion annual hard currency earnings.
Even if the Soviets are able to sustain oil production at just under
current levels and keep domestic use from rising, hard currency earnings
from oil measured in constant dollars could decline by more than 50
percent by 1990.
-- Should oil production decline by 1 million b/d as some experts
predict, earnings would fall even more sharply to perhaps only
one quarter of current levels.
-- In either case, the decline in earnings will be even greater if
the presumed decline in deliveries to Eastern Europe is not
continued.
Gas sales cannot make up for lost oil earnings over the 1985-90 time
period.
-- Even under a maximum export scenario, hard currency earnings
from gas sales will rise by only about $1 billion in real terms
over the next five years.
The hard currency earnings decline (measured in constant dollars)
from reduced oil exports will become worse by the year 2000 even if oil
production can be maintained and real oil prices rise.
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NOFORN
SUBJECT: Future Declines in Soviet Oil and Gas Earnings
If the West Europeans abide by their agreement to limit gas
dependence, total earnings from oil and gas in the year 2000
will range from 40 percent to less than 70 percent of current
earnings. Extensive use of Western energy technology and
equipment would be needed to keep oil production and, hence,
revenues at the high end of the range.
-- Gas exports can make up the earnings gap in this time frame only
if the Soviets can convince the Europeans to buy 120 billion
cubic meters per year--roughly triple current levels.
2
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SECRET
NOFORNS
OIL PRODUCTION, EXPORTS, AND REVENUES
(millio
n b/
d)
1983 Actual 1
990
Production
12.3
1
1.0
- 12.0
10.0
- 12.0
Internal Consumption
9.0
9.3
8.6
- 9.4
Soft Currency Exports
2.2
1.4
- 2.0
1.4
- 2.0
Hard Currency Exports
1.4
0.5
- 0.9
0.2
- 0.8
(Earnings, billion 1983$)
(15.6)
(
3.90
- 7.0)
(1.7
- 6.9)
GAS PRODUCTION, EXPORTS, AND REVENUES
(billion cubic meters)
Production
536
620
950 - 1,000
Consumption
478
548
815 - 826
Soft Currency Exports
35
38
67
Hard Currency Exports
26
37
60 - 120
(Earnings, billion 1983)
(3.2)
(4.1)
(5.8 -10.5)
3
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SECRET
NOFORN/
SUBJECT: Talking Points on the US-USSR Joint Commercial Commission
Meeting Scheduled for May 20-21 in Moscow
NIO/Econ/DL:ri
25 April 1985
Distribution:
Original - Addressees
1 - DDCI
1 SA/DCI
1 - DCI/SA/IA
1 - Executive Registry (w/o atts.)
1 - C/NIC
1 - VC/NIC
1 - NIO/USSR
1 - NIO/S&T
1 - D/OSOVA
1 - D/OGI
1 - NIO/Econ
1 - A/NIO/Econ
1 - NIO/Econ Chrono File
/Econ File
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 FOR
1-79M 610 USEDITIpJOUS
ROUTING AND RECORD SHEET
SUBJECT: (Optional)
Talking Points on the US-USSR Joint Commercial Commission
FROM:
I EXTENSION
NO.
David B
Low
NIC 02177-85
/---=
.
NIO/Economics
DATE
'
25 April 1985
TO: (Omcer designation, room number, and
DATE
building)
OFFICER'S
COMMENTS (Number each comment to show From whom
RECEIVED
FORWARDED
INITIALS
to whom. Draw a line across column after each comment.)
1.
2 6 A
R 1985
Executive Re ist
2.
3.
DCI/SA
4.
DDCI
2 6 AP
1985
6.
7.
DCI
IN~y
29 APR
198
/IJ/o 1Go/1/
9.
10.
11.
12.
13.
14.
~4.
1S.
'F`~+ J
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EXECUTIVE SECRETARIAT
ROUTING SLIP
ACTION
INFO
DATE
INITIAL
1
DCI
X
2
DDCI
X
3
EXDIR
4
D/ICS
5
DDI
6
DDA
7
DDO
8
DDS&T
9
Chm/NIC
10
GC
11
IG
12
Compt
13
D/Pers
14
D/OLL
15
D/PAO
16
SA/IA
17
AO/DCI
18
C/IPD/OIS
19
NI con
x
20
IC
x
1
122,
Remorks TO 20: David Low should provide comments on
this, as appropriate, for DCI and DDCI. (DDCI is
scheduled to attend this meeting as the DCI is
currently scheduled to be out of to nz) .
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ON-FILE NSC RELEASE INSTRUCTIONS
APPI V
April 25, 1985
MEMORANDUM FOR MR. NICHOLAS PLATT
Executive Secretary
Department of State
MR. EDWARD J. STUCKY
Acting Executive Secretary
Department of the Treasury
COLONEL R. J. AFFOURTIT
Executive Secretary
Department of Defense
MRS. HELEN ROBBINS
Executive Assistant to the
Secretary
Department of Commerce
Executive Secretary-
Central Intelligence Agency
SUBJECT: Breakfast Meeting on the U.S.-Soviet-Joint
Commercial Commission Meetings (C)
There will be a "principals only" breakfast meeting on
Saturday, April 27, at 8 a.m., in the White House Situation
Room to discuss the U.S.-Soviet Joint Commercial Commission
Meetings. The attached policy position paper, prepared by
the Department of Commerce, will be discussed at that
meeting. (C)
Robert M. Kimmitt
Executive Secretary
cc: The Chief of Staff to the President
Attachment
Tab A Policy Position Paper
SECRET
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85- 1698/1
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On file waiver applied.
April 24, 1985
MEMORANDUM FOR ROBERT C. MCFARLANE
Assistant to the President for
National Security Affairs
SUBJECT: Policy Guidance for US-USSR Joint Commercial
Commission Meeting
Basic policy positions on Soviet trade issues were considered
by the SIG-IEP and approved by the President in January as part
of the preparations for the US-USSR Working Group of Experts
meeting. The attached paper has been reviewed at the IG level
and represents what we believe to be an updated interagency
view of the policy positions and guidance the U.S. delegation
should follow in Moscow.(U)
I an asking for NSC or other appropriate Cabinet-level review
of the policy positions in the attached paper to ensure they
represent a unified and updated Administration view of what the
JCC should accomplish and the policy framework in which it is
taking place.(U)
Secretary of Commerce
Attachment
rats DOC s +T IS TiCRLLx
DEr .i s .J REN CL L!;!F~D
':CLCSUI 3 AF F'r,,OVZD
SECRET
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OVERVIEW OF U.S.-SOVIET TRADE ISSUES
FOR JOINT U.S.-U.S.S.R. COMMERCIAL COMMISSION
IN MOSCOW MAY 20-
The purpose of the meeting is to review the objectives and policy
positions for the U.S. delegation to the Joint U.S.-U.S.S.R.
Commercial Commission (JCC), to be held in Moscow, May 20-21,
co-chaired by Secretary Baldrige and Soviet Foreign Trade Minister
Patolichev. (U)
Policy positions on Soviet trade issues were considered by the
SIG-IEP and approved by the President in January prior to the
Working Group of Experts meeting in Moscow, the purpose of which was
to lay the groundwork for a JCC meeting. The NSC is being asked to
review the policy positions to ensure they represent a unified and
updated Administration view of what the JCC should accomplish and
the policy framework in which it?is taking place. (U)
On energy matters the U.S. delegation will follow the policy set out
for the Working Group in NSDD 155 of January 4, 1985 -- 'U.S. oil
and gas equipment sales should not be an area in which the United
States should agree to an active policy of trade expansion pending
further policy clarification.' If oil and gas export policy is
raised by the Soviet delegation, the U.S. delegation will explain
our current export control policy. (S)
Last year the President indicated his decision to build a more
constructive working relationship with the Soviet Union, identifying
non-strategic trade as an area where further cooperation might be
possible. The President agreed to a 10-year extension of the
bilateral Long-Term Agreement to Facilitate Economic, Industrial,
and Technical Cooperation. Be announced that preparations would
begin for a meeting of the JCC, and he approved a meeting of the
'Working Group of Experts' to identify areas in which mutually
beneficial non-strategic trade could be expanded in conformity with
present export control policies and to help determine whether there
were sufficient grounds for a meeting of the JCC. (U)
CLASSIFIED BY: Multiple Sources
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The Working Group discussions were confined to the non-strategic
area, with the O.S. delegation telling the Soviets that the United
States was not willing to consider any changes in strategic trade
controls. The O.S. delegation also stressed human rights and the
fact that neither MPN nor any other fundamental change in the
trading relationship could occur in the absence of an increase in
emigration. (U)
The Q.S. maintained that nevertheless there were opportunities for
an expansion of trade. There were non-strategic areas such as food
processing where the U.S. was interested in selling, but where the
Soviets have curbed O.S. exports by removing O.S. firms from bid
lists, curtailing O.S. company promotion efforts, and encouraging a
policy of avoiding American products whenever possible. For their
part, the Soviets pointed to a variety of O.S. restraints on Soviet
exports. (U)
Both sides agreed that while the near-term prospects were not huge,
there were opportunities for expanding trade within the confines of
present controls and laws, there was mutual interest in increasing
trade where possible, and there were concrete actions that could be
taken to expand bilateral trade on a mutually beneficial basis. (U)
The Experts Group laid out the parameters for the JCC meeting, with
the O.S. side stipulating six issues for discussion, and the Soviets
laying out eight. Those issues comprise the framework of the JCC
meeting, and NSC concurrence with the positions to be taken by the
O.S. delegation is sought. (C)
U.S.-INITIATED ISSUES
These six issues pertain principally to obtaining greater market
access for O.S. companies seeking to sell non-strategic goods and
services to the U.S.S.R., and were approved as goals by the SIG-IEP
meeting in December. (C)
1. Joint Statement in Su ort of Mutually Beneficial Trade -- In
January the Soviets agreed to the concept of a joint statement in
favor of expanding bilateral trade, we should seek a statement that
will make clear that economic relations cannot be isolated from
other elements of the overall relationship; express the support of
both sides for expansion of mutually beneficial non-strategic trade
in a manner consistent with present laws; and indicate those steps
they intend to take to support trade -- including trade exhibitions,
business facilitation assistance, and publicizing trade
opportunities. A basic purpose of the joint statement is to make
clear to Soviet purchasing officials and to O.S. business that both
governments encourage efforts to develop new mutually beneficial
business. (C)
The draft joint statement is attached. It takes into account all
agency views.provided to the Commerce Department. (FOLIO)
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2. Bid Invitations -- Being invited to bid on projects or contracts
is the only way companies have an opportunity to sell in the
U.S.S.R. At the Experts meeting the Soviets agreed in principle to
reinstitute the provision of bid invitations to O.S. firms. Embassy
Moscow reports that they have begun doing so. The U.S. should seek
written agreement to put all interested U.S. firms on bid lists.
This should be included in the `Joint Statement'. We should also
seek Soviet agreement that the O.S. Commercial Office in Moscow will
be able to participate in the process. (C)
3. Equal Treatment for U.S. Firms -- Soviet Foreign Trade
organizations FTOs have maintained de facto discrimination against
U.S. firms in non-strategic areas. The O.S. should seek visible
Soviet Foreign Trade Ministry action, such as a letter to Soviet
FTOs from Minister Patolichev or some other ranking official stating
that U.S. firms are not to be discriminated against, and that the
proposals of U.S. firms should be given full consideration on the
basis of their economic merit. (C)
4. Si n Some Long-outstanding Contracts -- The O.S. should seek to
have the Soviets sign some major ong-standing contracts as a firm
signal of their intention to do non-strategic business with U.S.
firms. In January the Soviets agreed in principle, and since then
have signed two or three small contracts ($5-10 million). We should
seek to have some large contracts signed, such as the Abbott baby
food plant or International Harvester (Tenneco) combine factory. (C)
5. A ree on Future Project Areas -- The Soviets agreed to discuss a
range of industry sectors and specific projects of mutual interest
in which the Soviets would then seek U.S. company proposals. While
this would not guarantee D.S. companies the contracts, it would
provide an inside track for drawing up specs, etc,. Beginning with a
list of sectors identified by the U.S.-U.S.S.R. Trade and Economic
Council, we have told the Council we are interested in exploring
projects in nine sectors:
Agribusiness
Pulp and paper
Pollution control
Textiles
Land reclamation and irrigation
Materials handling
Transportation
Petrochemicals
Consumer goods. (C)
We should seek Soviet statements that they will make special efforts
in these areas to work with U.S. companies in attempting to develop
projects that will be brought to fruition. While this will not
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guarantee business to D.S. firms, it would greatly improve their
ability to design projects in ways that would emphasize their
competitive strengths. A Projects Working Group would be
established under the JCC to monitor progress and seek to maximize
U.S. business. The Soviets understand that all such projects will
have to be in full compliance with U.S. export control regulations.
(C)
6. Soviet Support for USCO -- The Soviets have agreed to terminate
their ban on company seminars and exhibitions at the O.S. Commercial
Office in Moscow (USCO) and to begin providing the necessary
facilitative support, if the Department of Commerce will also
reinstitute participation in some Soviet trade fairs. The O.S.
would announce its intention to begin an initial promotion program
in the U.S.S.R. which would include a small number of trade
missions, U.S. exhibits in one or more appropriate Soviet trade
fairs, and a full range of solo and multiple exhibitions and
seminars at USCG. (C)
In addition, the U.S. should accept the Soviet offer to pay half the
cost of a program to help smell U.S. companies sell in the Soviet
Union. The U.S. should propose that in part this should be in the
form of sharing the cost of small business information centers that
the Commerce Department would set up in appropriate Soviet trade
fairs. We will note that this agreement in no way constitutes a
precedent for similar action in the U.S. (C)
A successful program which would generate U.S. sales in the U.S.S.R.
requires facilitative 46istance on the part of the Soviets, and the
U.S. should, on a reciprocal basis, offer to provide a
technical facilitation to the Soviets should they desirertorcommence
an export promotion program in the United States. Such assistance
would be limited to technical advice on how to use trade fairs in
the United States, and would not include any direct marketing
assistance to Soviet exporters. (C)
SOVIET-INITIATED ISSUES
1. MFN and Human Rights -- The U.S.S.R. will reiterate its official
view at the JC that human rights and trade should not be linked.
At the January Experts meeting the Soviets were told of our serious
concerns about Soviet human rights abuses and emigration policy.
The O.S. delegation made it clear that there could be no fundamental
change in the trade relationship in the absence of major improvement
in emigration practice. MFN, export credits, a trade agreement, and
other aspects of a fundamentally-improved trade relationship were
out of the question unless that happened.. (C)
The U.S.~delegation should reiterate these serious concerns in the
most effective manner possible and should stress that major
improvement in Soviet human rights practices must accompany any
fundamental improvement in the trade relationship. (C)
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2. Furskin Embargo -- Since 1951 the United States has banned
imports from the U.S.S.R. of seven types of furskins. The U.S. has
a global trade surplus in furskins, with high quality pelts exported
and lower quality pelts imported. A Commerce review of the industry
indicates lifting the embargo would have little or no effect on
domestic production. The Soviets are seeking elimination of the ban
more for political than economic reasons. (C)
In January the President decided to indicate to the Soviets a
willingness to discuss with Congress lifting the ban if the Soviets
were willing to improve business conditions and prospects for U.S.
firms. The Soviets have begun to make such improvements, and
preliminary explorations on options for removing the furskins
embargo have been held by the Commerce Department with the relevant
House and Senate staffs. They indicated the best approach would be
for the Administration to introduce legislation to eliminate the
ban, and indicated the prospects for passage were good if properly
handled. (C)
The U.S. delegation should be authorized to tell the Soviets at the
JCC that in return for concrete steps to increase U.S. company
access to the Soviet market, the Administration will introduce
legislation to eliminate the embargo of the seven Soviet furskins.
(C)
3. Nickel Certification -- Under the economic embargo against Cuba,
the U.S. banned imports of unfabricated nickel-bearing materials
from the U.S.S.R. in December 1983 since the U.S.S.R. imports large
amounts of Cuban nicker. The U.S.S.R. was given the opportunity to
negotiate a certification arrangement similar to, ones negotiated
with our allies, but has been unwilling to discuss a
government-to-government agreem:nt. At the Experts meeting the U.S.
delegation reiterated an offer to consider the relevant Soviet
foreign trade organization (PTO) as the signatory if the Soviets
would provide a written commitment that the FTO was acting on behalf
of the Ministry of Foreign Trade. (C)
The Soviets have not responded positively to the'U.S. offer. If the
Soviets raise this issue, the U.S. delegation should inform the
Soviets that we have already attempted to accommodate certain of
their expressed concerns and believe the problem is resolvable if
they in turn demonstrate some flexibility. This position is
consistent with the view informally communicated by Treasury to the
Soviet Embassy representative since the Experts meeting. (C)
4. Aeroflot Landing Rights -- As a result of Afghanistan-, Poland-,
and KAL-relatod sanctions, all scheduled Aeroflot service to the
United States and virtually all ties between Aeroflot and the U.S.
travel industry have been terminated. In the January Experts Group
meeting the Soviets were told that the U.S. was
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willing to begin discussion of civil aviation matters, but only
after conclusion of an agreement to improve safety on North Pacific
air routes, and with the understanding that any restoration of
Aeroflot service would have to be part of a package offering an
equitable balance of concessions for O.S. carriers. (C)
Meetings were held in Washington between U.S., Soviet and Japanese
representatives on the question of North Pacific air safety February
26 - March 3. These sessions made some progress, but an agreement
has not yet been reached. We are hoping to arrange a follow-up
meeting in May. The U.S. delegation should reiterate our readiness
to enter into civil aviation discussions as soon as North Pacific
safety measures are agreed, reminding the Soviets that such
negotiations will require an equitable balance of economic
benefits. (C)
5. Port Access Regulations -- The Soviets seek relief from the pore-
access regulations imposed upon them following termination of the
bilateral maritime agreement and the imposition of martial law in
Poland, and particularly for their grain vessels seek easing of the
requirement for 14-day advance requests before being given
permission to enter O.S. ports. Under the expired maritime
agreement, from 1974 to 1981 Soviet vessels were required to make
only 4-day advance requests. (C)
O.S. agribusiness is concerned that the-current policy has an
adverse effect on O.S. grain exports to the U.S.S.R. The O.S.
maritime industry, however, believes that the 4-day notification is
their principal leverage on the Soviets in getting a new maritime
agreement with reciprdcal benefit for the O.S. industry. (C)
Op until January, as a Poland-related sanction, the United States
was unwilling to hold maritime discussions. During the January
Experts meeting, the Soviets were told that the United States was
willing to consider a change in port notification requirements as
part of an overall discussion of maritime issues within our
traditional maritime framework, and that such discussions would have
to encompass O.S. maritime interests. The Soviets noted this offer
with great interest in Moscow and made a follow-up inquiry in
Washington, but have not responded. (C)
The U.S. should inform the Soviets in advance of the JCC that we are
willing to include a Maritime expert on our delegation to have an
exchange of views on the parameters of a possible maritime
agreement. (C)
6. Tax Protocol -- A tax protocol amending various provisions of
the 0 .S.- S.S;R. income tax treaty was agreed to in May 1981, but
not signed. Among other matters, the protocol addressed Soviet
concerns regarding U.S. tax treatment of Soviet employees of
Aerof lot. A compromise was worked out under which such employees
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would pay back income taxes and interest, but would be exempt from
social security and unemployment taxes retroactive to 1976, when the
basic treaty took effect. Changes in tax laws since 1981 would have
to be reflected in any new protocol, and it maybe very difficult to
make refunds from the Social Security Trust Fund. (C)
The Soviets were told in January that the United States was willing
to move forward on the unsigned protocol, but that changes may have
to be made. No response has been received from the Soviets, and no
further O.S. action should be taken other than to reiterate the
January offer. (C)
7. Supplier Reliability -- The Soviets want a discussion of this at
the mee ing. The O.S. delegation should explain the meaning of
the contract sanctity provisions of the Export Administration
Amendments Act, which passed the House and is awaiting Senate
action. The Act contains two 'contract sanctity' provisions. As to
agricultural commodities, forest products and fisheries products,
short supply export restrictions will not apply to any contract to
export which was entered into before the date on which the controls
are imposed. (C)
The Export Administration Amendments Act also contains a general
contract sanctity provision applicable to controls imposed in the
future on foreign policy grounds. The President is forbidden to
prohibit or curtai export or reexport of goods, technology or
other information unless he determines and certifies to Congress
that there exists a breach of the ace which poses a serious and
direct threat to the strategic interest of the United States. (C)
These contract sancitity provisions would not apply to new controls
imposed under other authority (national security provisions of the
EAA, the International Emergency Economic Powers Act, or new
legislation), but the recent legislative action on the subject will
have a restraining influence on the exercise of such other
authorities. (C)
8. Antidumping -- Not currently an issue. The January Experts
Group conducted a seminar for Soviet officials 'addressing Soviet
concerns and their inadequate understanding of U.S. law and
practice. The Soviet potash case was terminated in March, because
the International Trade Commission found that O.S. potash producers
were not being materially injured. In April, Commerce issued the
Administrative review of the antidumping order on titanium sponge,
finding a margin of 83.96 percent. The result was based on the best
information available because the Soviet exporter submitted an
inadequate response to our questionaire. (C)
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Drafted by: Commerce/ITA/EUR: 4-16-85/Revised 4/24/85
Clearances: Commerce/TA:
Commerce/TD:
Commerce/GC:
Commerce/CA:
Agriculture:
State/EB:
State/EUR:
Transportation:
Treasury:
DSchlechty, 4/23/85
GRaplan, 4/24/85
HMisisco, 4/23/85
CNovelli, 4/24/85
GMcKiernan, 4/24/85
LSebranek, 4/23/85
EHurwitz, 4/24/85
DRursch, 4/23/85
RBourdon, 4/23/85
CHeckman, 4/24/65
GClapp, 4/22/85
MMuench, 4/24/85
RJohnson, 4/23/85
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(b)(5)
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