A COLLECTIVE APPROACH TO EAST-WEST ECONOMIC RELATONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-01156R000200220013-8
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 5
• Document Creation Date: December 21, 2016
• Document Release Date: December 8, 2008
• Sequence Number: 13
• Publication Date: June 20, 1983
• Content Type: OPEN SOURCE

UNDER SECRETARY OF STATE
FOR ECONOMIC AFFAIRS
In the light of the contention surrounding the East-
West economic work program that we undertook last Fall, I
thought it would be useful to highlight its accomplish-
ments. I therefore summarized them in a speech last
month, and enclose a copy herewith.
 Current
Policy No. 495
A Collective Approach to
East-West Economic Relations
June 20, 1983
United States Department of State
Bureau of Public Affairs
Washington, D.C.
Following is an address by Allen Wallis,
Under Secretary for Economic Affairs,
before the American Society of Business
Press Editors, Chicago, Illinois, June 20,
1983.
My talk this morning is concerned with
the effort that the United States and its
Japanese, Canadian, and European part-
ners are making to fashion a collective
approach to their economic relations
with the Soviet Union. As you know,
this is a particularly difficult under-
taking. The problems lie in the nature of
the Soviet system, in the events of the
last dozen or so years, and in various
economic and geographic differences
among the United States and its part-
ners. Nevertheless, the undertaking is
succeeding with important concrete and
durable results to show for our common
efforts.
I will describe some of these results
in a few moments, but first I will review
briefly how we got where we are and
why this process is such a difficult, but
at the same time important, under-
taking.
Review of East-West Relations
In mid-1983, it is difficult to recall how
warm, even euphoric, the atmosphere of
East-West relations was in 1972, the
heyday of detente. The Soviet Union and
the United States had just signed a
strategic arms limitation agreement,
perceived at the time as an important
milestone in limiting arms expenditures
and as the prime indicator of relaxation
in Soviet-American relations. President
Nixon and Premier Brezhnev exchanged
visits and signed numerous agreements.
Allies on both sides joined in to create a
widespread spirit of East-West detente.
Economic relations, naturally,
played a major part in the new at-
mosphere. The West liberalized its credit
terms, and the Soviets took advantage
of this liberalization to increase their
purchases of Western grain and of
technology and equipment that they
could make only with difficulty or not at
all. Truck assembly lines, entire chemical
plants and innumerable pieces of capital
equipment were purchased by the
Soviets. Both sides experienced eco-
nomic and political benefits from the in-
creased level of trade.
The theory underlying detente was
that a web of economic, scientific,
cultural, and political relationships would
so interlink Soviet and Western societies
that their views on security and other
core issues would tend to converge. It
was believed that the tangible benefits
flowing from economic and other inter-
changes would encourage Soviet re-
straint in foreign policy.
In forging economic links with the
Soviets, the United States was as eager
as any nation to increase the level of its
commerce. From 1972 to 1975, U.S.
trade with the Eastern bloc nearly
tripled. The Pullman Corporation helped
the Soviets to set up production lines at
the Kama River truck plant, and the
Bryant Manufacturing Company sold the
 Soviets equipment that allowed it to
make miniature ball bearings of extreme
precision.
We all know how the hopeful views
of East-West relations spawned early in
the decade soured at the end of the
decade, especially after 1979. Detente,
with its web of relationships and in-
contestible economic benefits to Soviet
society, was no barrier at all when
Soviet decisionmakers saw opportunities
to advance their strategic position
through overseas adventurism or
outright military aggression. Anyone
who had illusions that fundamental
Soviet views had changed during
detente was quickly disabused of those
notions.
It is a familiar litany to describe how
the Soviets, in the late 1970s and after,
failed to live up to the hopes of a decade
earlier. Their sponsorship of Cuban
adventures in Africa, their continuing
activities in Indochina, their invasion of
Afghanistan, their crackdown in Poland,
and their involvement in Central
America were visible indications that
their fundamental values and policies
had not been changed at all by a more
lenient, friendly, and cooperative at-
titude on the part of the West. Under-
lying these aggressive acts, of course,
was the massive and unrelenting Soviet
military buildup that went far beyond
any reasonable notion of what would be
needed to defend the U.S.S.R. Even in
the area of strategic arms, supposedly
restrained by the SALT [Strategic Arms
Limitation Talks] agreement, the Soviets
continued the most massive buildup in
all history.
Western Reevaluation of Relationship
As the Soviets demonstrated that their
fundamental values and policies had not
changed, Western governments began to
reevaluate their economic, political, and
security relationships with the East. At-
titudes changed quickly in the United
States. A pivotal point was our refusal
in 1979 to ratify the SALT II Treaty.
That has been followed by strenuous ef-
forts to increase our defenses against
the Soviet threat. Our allies and part-
ners also concluded, in the various and
wondrous ways by which democratic na-
tions reach decisions, that the relaxed
policies of a decade earlier were no
longer appropriate-perhaps never had
been. Soviet behavior made it obviously
dangerous to conduct economic relations
with the Soviets in ways that underwrite
and enhance military capabilities. The
danger was underscored by direct use by
the Soviets of equipment from the West
to manufacture items for their military.
The ship that had embarked so hopefully
upon the seas of detente obviously had
to come about and chart a new course.
In the economic area, it was hardly
a surprise that U.S. attitudes changed
more rapidly than those of our Euro-
pean and Japanese partners. European
and Japanese trade with the East has
always been much more extensive than
that of the United States, even before
the Russian revolution of 1917. There is
a natural complementarity of trade be-
tween Eastern raw materials and
Western manufactured goods. This fac-
tor, combined with geographic proximi-
ty, means that East-West trade is much
more important to Europeans and
Japanese than to Americans.
As Western views changed, dif-
ferences in the pace with which in-
dividual governments reevaluated their
positions on East-West economic rela-
tions created noticeable tensions within
the alliance. Such tensions are, of
course, a fact of life in relations among
democratic states. It is the job of
statesmen to resolve the differences and
preserve the fundamental community of
values among their respective nations.
It is interesting to trace this change
in attitudes, to see how difficult it can
be to change course on a major policy
question. In announcing his candidacy
for president, Ronald Reagan said:
On the foreign front, the decade of the
1980s will place severe pressures upon the
United States and its allies. We can expect to
be tested in ways calculated to try our pa-
tience, to confound our resolve, and to erode
our belief in ourselves.
For the most of the last forty years, we
have been preoccupied with the global strug-
gle-the competition with the Soviet Union
and with our responsibilities to our allies. But
too often in recent times we have just drifted
along with events, responding as if we
thought of ourselves as a nation in decline.
It is now time to take stock of our own
house and to resupply its strength.
Our process started within the
government with a thorough analysis of
East-West economic relations, ind the
work with the allies began in earnest at
the Ottawa economic summit in July
1981. The leaders at Ottawa made a
significant statement about East-West
relations:
We concluded that consultations and,
where appropriate, coordination are neces-
sary to ensure that, in the field of East-West
relations, our economic policies continue to be
compatible with our political and security ob-
jectives.
During the following year, leading
up to the summit at Versailles, we
worked with our summit partners on a
number of specific issues-principally on
the problem of European vulnerability to
disruption of Soviet gas exports. At Ver-
sailles, the leaders again adopted a
statement on East-West economic
issues, but it was clear that the analyses
of the issues by the leaders were dif-
ferent enough to create problems in in-
terpretation and implementation.
Last summer, when Secretary
Shultz entered office, he was asked by
the President to listen carefully to what
our allies and friends were saying.
George Shultz is an able and experi-
enced negotiator who appreciates the
value of listening. As he listened, he
recognized two fundamental facts. First,
that there was enough convergence in
the views that he heard to give a good
chance of reaching agreement on a col-
lective approach to East-West economic
relations and, second, that a collective
approach would be much more effective
than a unilateral approach.
On Secretary Shultz' recommenda-
tion, President Reagan last November
lifted the restrictions imposed 5 months
earlier on the sale of oil and gas equip-
ment to the Soviet Union. In taking this
action, the President emphasized that
the United States and its European,
Japanese, and Canadian partners had
agreed to undertake a series of analyses
of East-West economic relations de-
signed to provide a framework for a col-
lective approach to these relations. The
analyses were undertaken immediately
in a variety of locations. It is the results
of those analyses that are the core of my
message today.
? In the Organization for Economic
Cooperation and Development, East-
West financial relations and credit terms
were examined. Special attention was
given to problems stemming from
Eastern nations' centralized control of
trade. A continuous review of a broad
spectrum of problems in East-West
economic relations was started.
? The International Energy Agency
analyzed the dangers created by undue
energy dependence, and it considered
alternative sources of energy.
? The North Atlantic Treaty
Organization examined the overall
security implications of East-West
economic relations.
? The Coordinating Committee for
Multilateral Security Export Controls
(COCOM) studied ways of improving
surveillance and control over Western
exports that have strategic or military
implications.
 Basic Framework
While some work is continuing in each
of these organizations, major segments
of the analyses that were started last
November have now been completed.
The results achieved thus far provide a
basic framework that has been agreed
upon by the United States and its part-
ners for the conduct of East-West
economic relations. The hopes of Presi-
dent Reagan and Secretary Shultz in
undertaking the analyses have been
borne out amply by the positive and con-
structive spirit in which they were con-
ducted and by the results that have been
achieved. In fact, the conclusions based
on those analyses that had been agreed
to before the 1983 summit meeting of in-
dustrialized countries made it unneces-
sary for the seven heads of government
to spend much time at Williamsburg on
this subject. In the Williamsburg
declaration the heads of state and
government said:
East-West economic relations should be
compatible with our security interests. We
take note with approval of the work of the
multilateral organizations which have in re-
cent months analyzed and drawn conclusions
regarding the key aspects of East-West
economic relations. We encourage continuing
work by these organizations, as appropriate.
Let me review for you some of the
major points on which the leaders based
that statement.
First, they recognize that the
Soviets use some forms of trade to
enhance their military capabilities and
that, as a result, we must be vigilant to
ensure that economic relations are con-
sistent with our common security in-
terests. While some forms of trade that
are conducted on commercially sound
terms can benefit both sides, we must
insist on a balance of advantages and
avoid preferential treatment of the
Soviets.
Second, in regard to energy, the
United States and its partners recognize
that natural gas, with its relatively in-
flexible supply system, poses particular
security problems. We have agreed that,
in meeting future gas needs, we will
take concrete steps to ensure that no
one producer is in a position to exercise
monopoly power over industrial coun-
tries. Further, we are also acting to en-
courage the production of natural gas
from Norwegian and North American
sources, and each nation is improving its
safety-net measures in order to be able
to deal with any interruptions of supply.
The United States and its partners have
agreed also to conduct. Regular reviews
of each country's energy policy, giving
special attention to dependencies and
alternative sources of supply. We believe
that these concrete accomplishments will
enhance Western energy security and
make it more difficult for the Soviets to
use its abundant energy resources to ex-
tract political gains.
Third, we reached agreeement that
it is not sensible to continue to give the
Soviets the same reductions on interest
rates given to newly industrialized coun-
tries to finance their imports. Our
agreed minimum interest rate for official
lending to rich countries, including the
Soviets is now 12.4%, nearly two points
above the current U.S. prime rate. Also
in the area of credits, we are working to
improve our ability to monitor credit
flows, so that our data on foreign in-
debtedness will be accurate and up to
date.
Finally, in coordinating controls
over the export of strategic technology,
we are united with our allies in declaring
that economic relations should not be
permitted to contribute to Soviet
military capabilities. At an April high-
level meeting with our COCOM partners
we explored ways in which the multi-
lateral system of controls could be
strengthened. The proceedings of the
meeting are confidential, but I can say
that the United States is well pleased
with the work on improving coordination
in export licensing and in the enforce-
ment of controls. We are confident that
the results of the COCOM work will
reduce the flow of high technology to
the East.
As you are aware, none of the
organizations within which these
analyses were performed (IEA, OECD,
NATO, and COCOM), is a supranational
body whose recommendations are bin-
ding on member states. Indeed, such a
rigid arrangement would be antithetical
to the spirit of our alliances and friend-
ships with other democratic countries.
Instead, the countries with which we
have collaborated in these analyses have
agreed with us concerning the validity,
relevance, and importance of the find-
ings; and they have agreed to take the
conclusions strongly into account as they
formulate their own national policies.
We are confident that the results that
have been achieved through this collec-
tive approach to East-West economic
issues will yield valuable benefits for
Western security.
I mentioned earlier that some
aspects of the studies are continuing.
We are seeking to build on the results
that have been achieved thus far and
heighten awareness of the security
dimension of East-West economic rela-
tions. We are starting a process that will
examine East-West economic relations
as they develop and will provide in-
formed analyses for the use of
policymakers. Specific efforts that are in
process now include:
? An effort in COCOM to
strengthen that organization and ex-
amine whether members' security in-
terests require controls on additional
high technology items;
? Continuing work within NATO on
the security implications of East-West
economic relations;
? An analysis in OECD of the bal-
ance of economic advantages in East-
West trade; and
? The ongoing study I mentioned
earlier of national energy policies and
Western energy security.
Before I conclude, let me restate our
position on East-West economic rela-
tions and say why we think this area is
so important. First, let me emphasize
categorically that we are not waging
economic warfare against the Soviet
Union. We do not seek to cause the "col-
lapse" of their economy. In fact, we
would not want that-that would be a
dangerous development. We favor
mutually beneficial economic relations
where those relations are conducted on
commercial terms and where the advan-
tages are mutual and balanced. An ex-
ample of mutually beneficial trade is
agriculture, where a U.S. team is at this
moment in Moscow negotiating a new
long-term agreement for grain sales to
the Soviets.
We must keep in mind, however,
that the Soviets vigorously seek to use
trade with the West to enhance their
strategic position and that they choose
to devote 15% of their gross national
product to the military-a level far
beyond what can possibly be regarded as
"defense." They have also not acted as a
responsible and restrained member of
the international order. As Secretary
Shultz put it last week in his statement
to the Senate Foreign Relations Com-
mittee, unconstructive Soviet behavior
has needlessly drawn more and more in-
ternational problems into the East-West
rivalry and made the task of managing
our relationship more difficult. In the
3
Approved For Release 2008/12/08: CIA-RDP85-01156R000200220013-8
 light of this, the United States and its
partners have agreed to conduct their
economic relations with the Soviets in a
way that does not give preferential
treatment to the Soviets or benefit their
military position. It is crucial that we
not permit our economic relations with
the Soviets to be used in ways that
reduce Western security.
and reluctant one for the United States
and its friends and allies. Differences of
perception within the alliance and varia-
tions in the pace at which views have
evolved sometimes have made the path
rocky. Yet, through patient and
toward the East for the rest of the
decade and beyond. Perhaps this ap-
proach can reduce, at least modestly,
the amounts that we must spend each
year to defend the values and liberties
that we and our partners hold dear. ^
Conclusion
To summarize, let me again state that
the process of turning away from the
economics of detente has been a long
Bureau,of Public Affairs
United States Department of State
Washington, D.C. 20520
If address is incorrect
please indicate change.
Do not cover or destroy
this address label.
approach to East-West economic rela-
tions has been forged.
We are confident that this collective
approach has strengthened our common
security, just as President Reagan said
in his radio address last November 13
that it would. It has provided a sound
basis for Western economic policy
Published by the United States Department
of State - Bureau of Public Affairs
Office of Public Communication - Editorial
Division ? Washington, D.C. - July 1983
Editor: Colleen Sussman - This material is in
the public domain and may be reproduced
without permission; citation of this source is
appreciated.
Postage and Fees Paid
Department of State
STA-501