Tag Archives: New Deterrent Working Group

It’s Time For The Soviet Union Formally To Renounce The Nazi-Soviet Agreements Of August 1939

(Washington, D.C.): The Center for Security Policy marked the fiftieth anniversary of the notorious Hitler-Stalin Non-Aggression Pact by releasing a report entitled, Fifty Years of Tyranny: The Intolerable Legacy of the Nazi-Soviet Agreements of August 1939. This report addresses the insidious consequences of the non-aggression accord — both those experienced immediately and those that continue today. It also calls attention to a less publicized agreement, signed four days earlier, that governed economic relations between Nazi Germany and the USSR and underwrote their collusive aggression against democracies.

"The Non-Aggression Pact and its secret protocol have wrought intolerable suffering, most especially on the peoples of Europe — suffering that has not ended even in the so-called era of ‘New Thinking’ in the USSR," said Frank J. Gaffney, Jr., the Center’s Director. "Among other things, these agreements made it possible for the Soviet Union to occupy and, ultimately, to annex the Baltic states. They laid the groundwork for the Soviets’ ongoing, forcible domination of Eastern Europe. While the Soviet leadership has, at last, acknowledged that these agreements were illegal and immoral, they have neither repudiated them nor taken steps to return the occupied nations to the status quo ante.

Gaffney added, "Western governments should immediately join those in the East bloc calling on a newly-appointed Soviet commission chaired by Alexander Yakovlev, a key advisor to President Mikhail Gorbachev, to disclose the full extent of the Nazi-Soviet collaboration and formally to renounce these odious agreements and the subjugation of free peoples they made possible."

"It is interesting to note," said Roger W. Robinson, Jr., a member of the Center’s Board of Advisors, "that the technical structure of current West German-Soviet trade is similar to that of 1939. A generous flow of manufactured goods, technology and easy credit is going east from the Federal Republic to the Soviet Union in exchange for Soviet raw materials, particularly energy resources."

"Moreover," Robinson observed, "some important details of this bilateral financial relationship are kept secret. Full transparency and data disclosure of these commercial and credit transactions are now required so that the Western democracies can coordinate the selective use of economic and financial leverage to press for real reform and transformation of the East bloc societies to a path of democracy and free markets."

Key Lawmakers Applauded For Opposing Commerce Department Decision To Aid Soviet Military’s Acquisition Of Computers

(Washington, D.C.): The Center for Security Policy today commended Senators Sam Nunn and John Glenn and Congressman Les Aspin for expressing in televised interviews Sunday concerns about the proposed decontrol of powerful computers to the Soviet Union and its allies. These influential legislators indicated that they shared Secretary of Defense Dick Cheney’s view that this action, taken last week by the Commerce Department, was contrary to U.S. national security interests. In a paperA Formula for Disaster: Computers for the Soviet Military, the Center describes the compelling reasons for these concerns and recommends specific actions to be taken by the executive and legislative branches before possibly irreparable harm results. released today entitled

"We at the Center for Security Policy are very pleased that security-minded Democratic leaders of the Congress have seconded Dick Cheney’s forceful disagreement with the Commerce Department’s decision to decontrol a class of enormously capable personal computers," the Center’s Director, Frank J. Gaffney, Jr., said today. "We urge them to use the opportunity afforded by the simultaneous consideration this week of the Defense authorization bill in both the House and the Senate to reverse this misbegotten action."

The Center also noted that Secretary Cheney in a separate interview this weekend underscored several of the key points made by A Formula for Disaster:

  • The types of computers the Soviets could acquire freely as a result of this decontrol action are more capable than are comparable ones now being used — or planned for acquisition — by the U.S. Defense Department.

    •  

  • The Commerce Department’s assessment of the foreign availability of the types of personal computers affected was simply wrong both with respect to its judgment of the quality and the quantity of such computers the Soviet Union could acquire elsewhere.

    •  

  • The process by which the Commerce Department’s decision was made without adequate participation by the Defense Department must be rectified so as to prevent a repetition of this sort of hasty and ill-considered action.

 

This decontrol action takes on all the greater significance in light of the recent revelations about Soviet penetration of the Coordinating Committee for Multilateral Export Controls, COCOM, the organization responsible for safeguarding Western militarily critical technologies from the Soviet bloc. Felix S. Bloch, who is suspected of spying for the Soviet Union, actively participated in the Administration’s decision earlier this year to relax U.S. policy on technology transfers.

Significantly, discovery of this possible compromise of a vital Western security mechanism comes on the heels of a similar espionage scandal that wracked COCOM last year. Michel Leger, a key member of France’s delegation to COCOM responsible for technology decontrol matters, was arrested by French authorities and charged with acting as a Soviet spy. Gaffney added, "Such developments underscore the point that the Soviet Union places high military and intelligence priority on undermining Western technology security; they also should prompt the U.S. government to redouble — not undo — its efforts to protect militarily relevant technology like advanced PCs."

The Center calls for independent reviews by the President’s Science Advisor and the General Accounting Office of the foreign availability of the personal computers affected by this decontrol action. Pending the completion of this review the Soviets should not be permitted access to such powerful machines. The Center also recommends legislation to require the concurrence of the Secretary of Defense on future East-West decontrol actions proposed by the Commerce Department.

“East-West Relations At A Crossroads: The Role Of Western Economic And Financial Assistance”

Remarks by

Roger W. Robinson, Jr.,
President, RWR Inc.,
former Senior Director for International Economic Affairs
at the National Security Council (1982-1985)

Before the Board of Governors of the International Policy Forum
and the Council for National Policy

Seville, Spain
July 21-22, 1989

I would like to extend my appreciation to the International Policy Forum and the Council for National Policy and their Board of Governors for the invitation to join this distinguished gathering to speak on the role of Western economic, and particularly financial assistance to Soviet bloc countries. The specific question posed is whether such assistance will advance or retard genuine economic and political reform in these countries. Similarly, will such assistance lead to a more inward-looking and peaceful Soviet Union or to an economically stronger and more dynamic adversary?

I think an appropriate point of departure for my remarks is the recent Paris Economic Summit where an extraordinary amount of attention was paid to these issues. For example, a concerted Western strategy to revitalize the failed economies of Poland, Hungary, and possibly other "reforming" East bloc countries was, in many respects, the centerpiece of the Summit discussions. Mr. Gorbachev’s dramatic written appeal for Western leaders to remember Moscow when formulating major trade and financial initiatives for Eastern Europe increased the profile of this family of issues even more.

Indeed, in September the first high level follow-up sessions in the 15-year history of economic summitry will be dedicated to catalyzing expanded East-West economic and financial ties — specifically, West to East flows of new credits, debt relief and trade benefits. This surprising and, in my mind, distorted Western policy priority is all the more striking when some two dozen Third World leaders also in Paris, were left marooned outside the gates of the Summit discussions. A comparable North-South dialogue on economic revitalization was summarily rejected by the United States and other summit leaders, despite strong French support for the concept. Although skepticism concerning such a dialogue is legitimate, the circumstances of the rejection were unfortunate. If there was any doubt in the minds of leaders of the developing world concerning which group of countries — the communist East or the Third World — are receiving preferential treatment by the industrialized West, there should be little confusion on this point in the post-summit period.

Gorbachev’s message to Summit leaders made clear that the satellites of the Soviet empire are not going to be alone as recipients of new Western trade and financial largesse. Moscow plans to be at the head of the line, notwithstanding the Bush Administration’s "differentiation policy." Excerpts from the Soviet leader’s letter include the following: "Our perestroika is inseparable from the policy tending toward full and entire participation in the world economy…. the rest of the world can only gain by the opening of the world economy to a market such as the Soviet Union….we could also begin procedures to merge, at a global level, the different organs of macroeconomic coordination."

These statements can be interpreted as saying: thanks in advance for providing us with observer and eventual membership status in the GATT, the IMF, the World Bank, and the Asian Development Bank as well as expanded access to Western credits (particularly the taxpayer guaranteed variety). Thanks also for overturning the Jackson-Vanik and Stevenson amendments providing MFN and U.S. Export-Import Bank credits and the International Energy Agency Agreement of May 1983 limiting Soviet natural gas deliveries to Western Europe. By the way, we also appreciate your lifting of COCOM restrictions on the flow of strategic Western technology. We’ll get back to you on the remaining items on our wish list.

This set of developments at the Summit was a far cry from the mood of the Senate. The U.S. Senate passed three virtually unanimous resolutions over the past 12 months calling on the President and alliance leaders to forge security-minded agreements on Western credit flows, joint ventures, and other forms of Western assistance to Warsaw Pact countries. Rather than tackle the challenge of greatly enhancing alliance discipline and transparency in the conduct of East-West economic and financial relations, President Bush may well be on the threshold of expanded Western concessions to these countries, primarily at the expense of U.S. taxpayers. The Congress and other interested groups should insist that certain facts about Soviet policies be addressed prior to signing on to premature Western measures designed to alleviate economic hardships in the Soviet bloc. These include:

  • An increase last year of 3 percent in real terms of Soviet defense spending, despite the bloated military sector of the economy already absorbing between 17-25 percent of annual Soviet GNP;

    •  

  • A sharp increase in Moscow’s arms sales to the developing world in 1988 to an estimated total of $13 billion– or a 38 percent share of the world’s arms market;

    •  

  • A massive increase in Soviet military deliveries to the Kabul regime — an estimated $300 million per month since March — bringing Moscow’s total annual expenditures in Afghanistan to at least $3 billion;

    •  

  • A multi-billion dollar arms deal concluded between Moscow and Tehran over the strong objections of the Bush Administration;

    •  

  • Continued shipment of SU-24 fighter bombers to Libya during the period when the Rabta chemical weapons facility is nearing completion;

    •  

  • Uninterrupted arms supplies via Cuba or directly to Nicaragua, Panama, and the FMLN in El Salvador;

    •  

  • A postponement of systemic economic reform in the USSR, including price reform, and no reform whatsoever in the GDR, Czechoslovakia, Bulgaria, and Romania; and

    •  

  • A stepped-up effort by Soviet bloc nations to steal militarily-relevant Western technology along with the broadening of Moscow’s foreign espionage activities.

 

Time does not permit continuing this list, but I think we can agree that it is a long one.

We now find ourselves at a crossroads in East-West relations. Either the Warsaw Pact still represents a major threat to vital Western security interests — hence justifying the B-2 bomber, SDI, and other major defense expenditures — or it does not. The Administration is apparently confused on this question. For example, it asserts that the Soviet threat remains real enough for a possible $70 billion expenditure on the stealth bomber, then turns around and ignores the call for national security safeguards in Western economic and financial activity with East bloc nations. This is particularly tragic when U.S. taxpayers are being penalized billions of dollars annually in additional defense and foreign assistance spending to counter the consequences of undisciplined Western financial flows to Warsaw Pact countries. Far from alliance defense burden-sharing, our allies are often callously engaged in "burden-imposing" practices in the economic and financial portfolio.

In this connection, it is ironic that the Bush Administration claims that money is fungible and therefore the use of any type of capital controls toward Warsaw Pact countries will not work. At the same time, however, the Administration is using capital controls against Panama and, at the Summit, strongly supported the creation of a "financial task force" to track drug money through the banking system and staunch the laundering of drug profits.

The foreign policy establishment would also have us believe that we can humanize communist societies simply by offering healthy doses of Western credits, investment, and technology, along with preferred access to Western markets. They endorse Gorbachev’s call for economic "interdependence" between East and West as though the Soviets were capable of playing a constructive role in the global economy. In truth, they advocate economic appeasement of the USSR, hoping that Western concessions will automatically be followed by Soviet moderation.

The bad news is that we can expect to hear much more of these arguments, even from members of the Administration, in the period ahead. The good news is that they will probably fail to shape U.S. policy in this direction. There are simply too many policy inconsistencies and counter-pressures, not the least of which is the common sense of the American people and their representatives in Congress.

There is now before us a real chance of winning the East-West struggle on terms that those gathered here could endorse. The Soviet empire is beginning to break up economically — in the USSR itself, in Poland, Hungary, Cuba, Nicaragua, Angola, Mozambique, Ethiopia, and Vietnam. This is not just my view, but what the Soviets themselves are saying about their country’s plight. The maverick Boris Yeltsin and prominent Soviet economists have gone so far as to predict massive social upheaval within two years if the crisis in the civilian economy is not alleviated.

Gorbachev is in a tight spot with little time. What he wants most of all is to avoid making the hard choices between guns and butter — between empire and domestic stability.

The Kremlin is saddled with the fact that Brezhnev overreached himself by trying to extend Soviet influence deep into the Third World. Brezhnev did not anticipate the exorbitant cost of Soviet empire, now an estimated $27 billion annually (some $9 billion of which is in hard currency) or the election of Ronald Reagan. He did not imagine that Third World freedom fighters would be able to challenge the mighty Red Army. Even with growing detente toward the West and easy access to credits, the cost of the Soviet empire has become too great to shoulder.

Gorbachev’s strategy is a subtle one — convince the West to bail out the empire’s bankrupt economies while leaving intact communist political institutions. With the resources he saves, Gorbachev could pursue his military modernization program, while maintaining control of the captive nations. He is counting on expanded East-West finance and trade to provide a high technology bonanza for the Soviet military establishment.

I call this process one of internationalizing perestroika. It is defined as a "restructuring" which off-loads Soviet financial obligations to impoverished allies and client states from Moscow’s books to Western balance-sheets. From Andrei Sakharov to Senator Bill Bradley, we are being warned of what lies ahead if we allow Gorbachev to set the agenda on Western economic and financial assistance to the communist economies. Specifically, we can expect a continued arms race, a slow-down in Soviet and East bloc reforms, continued global adventurism, and the squandering of finite Western resources.

In the months ahead, the West has the opportunity to launch its own economic offensive in Eastern Europe. The widest democratic opening lies in Poland thanks to President Reagan’s resolute stand in 1982. By imposing economic sanctions on equipment and technology destined for the huge Siberian gas pipeline project, he put the Soviet Union on notice that if troops were used against Polish workers this crucial project would be scrapped entirely. Brezhnev got the message and kept his troops out. Subsequently, Jaruzelski has been forced to tolerate the democratic opposition as at least a part of the power structure.

So where do we go from here? The allies have just promised consultations under the auspices of the European Commission to flesh out Western economic and financial commitments to Poland and Hungary. Thus far, the Poles have found the President’s will is much bigger than his wallet. The harsh realities are that Poland is unable to achieve systemic economic reform given the rigidity of Soviet-imposed economic management and infrastructure. As Lawrence Brainard of Bankers Trust has said, the IMF and the World Bank will likely be ineffective in Poland because they do not attack structural defects, only the economic symptoms such as inflation, subsidies, and deficits.

Western commercial banks know this and will probably not return to Poland, absent government guarantees, unless a genuine economic revolution occurs first. They are happy to stay on the side-lines and collect their interest while contributing minimal amounts of new short-term money. Instead, Poland has become the special burden of Western taxpayers and thus far, a "free ride" for the Soviet Union. It is ironic that the Soviets can afford to spend billions of dollars each year to support their commitments in Afghanistan, Cuba, Nicaragua, Ethiopia, Angola, and Vietnam, but refuse to contribute major new resources to the Polish recovery effort.

Poland and Hungary are now seeking access to a number of U.S. trade and financial privileges, including: permanent or multi-year most-favored-nation status, tariff benefits under the generalized system of preferences, eligibility for Overseas Private Investment Corporation programs and large-scale debt relief. Why not grant these trade and financial benefits only if the President is able to certify to Congress that these countries have abandoned activities that endanger U.S. security such as technology theft, espionage, support for terrorists, and the sale of chemical and biological weapons capabilities to third countries? Eastern Europe should be obligated to choose between pleasing the Soviet military establishment and not jeopardizing Western democracies.

I believe the time has come to see whether the Administration’s differentiation policy can truly be made to work for Western security interests by applying these sensible legislative preconditions to East European countries seeking assistance.

Another major area that requires corrective policy action is the ease with which the Soviets tap the resources of the international banking system. The present system of financial reporting is entirely inadequate to monitor West to East credit flows even from the perspective of commercial prudence. In addition, no alliance-wide, systematic program is in place to track — and hence discourage — the Soviet bloc’s diversion of billions of dollars annually in borrowed Western funds to support client states, arms sales, technology theft, guerrilla organizations and other purposes inimical to Western security interests.

As with the technology theft problem in the 1970s, Western governments seem loath to admit anything improper or dangerous is going on in the financial sphere. That includes the U.S. executive branch which, over a two-year period, has ignored a total of six bipartisan congressional initiatives calling for action on the security dimensions of East-West finance.

The Paris Economic Summit has come and gone, and like Toronto and Venice before it, this subject was predictably ignored. It is enough to make a cynic believe that the State Department hopes to somehow smooth the way for arms control agreements and the blossoming of a new detente by allowing the Soviets undisciplined access to Western financial resources. I hope this is not the case. But I recommend that the Congress be urged to stay on top of this issue until satisfactory alliance agreements are achieved. The highly provocative PBS television documentary entitled "Follow the Money," produced by the Blackwell Corporation and recently aired nationwide, should greatly advance this alliance policy goal.

I also recommend that we strongly support the initiative of Senators Bradley, Symms, Helms, DeConcini and others that the U.S. take the lead in urging our allies to phase out all government guaranteed credits to the Soviets which are, by definition, subsidies that transfer the risk of any future Soviet debt rescheduling or default from the commercial banks to Western taxpayers. It is time to let the free market decide on the future of perestroika without the artificial stimulus of publicly-financed inducements.

Further, Soviet entry into the international bond market should also be brought to a halt. This strategic development allows Moscow to recruit, for the first time, Western securities firms, pension funds, insurance companies, corporations, and even individuals as lenders of untied money to support the Soviet external empire. Over time, millions of Western citizens could be wittingly or unwittingly holding Soviet paper in their bond portfolios and pension funds. In this connection, Congress should pass legislation which would maintain Johnson Debt Default Act prohibitions on U.S. untied lending to the Soviets, irrespective of any settlement of defaulted czarist bonds to the United States. Moreover, Moscow’s intention to open a branch in New York City this fall of the Soviet Bank for Foreign Economic Affairs should likewise be thwarted. This concession is premature. If these and other actions are taken, the West will have made substantial headway in protecting its economic and security interests.

As far as Cuba and Nicaragua are concerned, we have it within our grasp to force an end to their regional aggression. In the coming months, as the Soviet economic crisis becomes more acute, there will be far fewer Soviet resources for the Castro and Ortega brothers. Our urgent task is to persuade the allies and multilateral institutions to cut back their substantial annual financial support to these regimes. It is critical that we disrupt these financial lifelines from the West before Cuba, Nicaragua and Panama cement an anti-democratic alliance in Central America that would pose a grave risk for U.S. security.

Finally, the powerful lessons of China, including the memory of the differences between the policy response of the Administration and the Congress, should be transferred to shaping future economic, financial, and technology security policies toward Soviet bloc countries. Deng Xiaoping, that former friendly face of communism — who was viewed by most Americans during his earlier visit to the United States in 1979 as a kind of oriental leprechaun — has now shown his true colors. It is likely, due to the nationalities crisis and labor strikes in the USSR, that the immensely popular Mikhail Gorbachev will one day show his.

On that day or week-end, how much Western high technology and capital will be, in effect, frozen in Soviet vaults? What kind of leverage will the alliance have to influence Soviet restraint if we have already made largely irreversible economic concessions such as granting Moscow observer status or membership in the West’s major trading and financial institutions? The recent 418 to 0 vote in the House of Representatives for tougher economic sanctions against China, combined with a Senate vote of 81 to 10 in the midst of the Paris Summit, should have sent certain unmistakable messages to the Bush Administration.

Among these messages are the following: The American people will not tolerate the supremacy of commercial relations over human rights. They will not allow the signal to be sent to Chinese leaders that brutal repression is somehow cost-free. The Congress will not protect the business and banking communities –which is the Administration’s inclination — when pro-democracy demonstrators are being arrested and even executed on a wholesale basis. Members on both sides of the aisle refuse to buy onto the State Department’s fiction that economic and financial sanctions only hurt the Chinese people we wish to help.

Finally, the majority of the Congress and the American people are not going to permit some in the executive branch to achieve their principal "hidden agenda" goal. That goal is to avoid any precedent being established for the imposition of serious U.S. economic and financial sanctions in cases of domestic repression by communist regimes, and thereby insulate Soviet bloc countries from paying a high price for future crackdowns.

In sum, neither the Soviet Union nor Eastern Europe should be allowed to have it both ways — that is, enjoy the benefits of Western financial and trade largesse, while continuing to undermine our vital security interests, basic human rights, and the movement toward greater political freedom.

Weinberger Calls On Summiteers To Link Aid To East To Fundamental Change In Soviet Threat

(Washington, D.C.): The Center for Security Policy today released excerpts of a major address to be given by former Secretary of Defense Caspar W. Weinberger on Thursday, 13 July at the Town Hall of California in Los Angeles. In his prepared remarks, Secretary Weinberger urges that the leaders of the major Western democracies use the upcoming Paris Economic Summit to fashion a new approach to economic, financial and technological assistance to the East bloc.

Mr. Weinberger argues: "We should proceed expeditiously…to identify, on an alliance-wide basis, appropriate linkages between Moscow’s need for economic and financial assistance, and concrete actions by the Soviets to reduce the global threat to freedom…." The former Defense Secretary recommends the following as among the needed elements of such a policy approach:

  • "A multi-year, proven record of sharply reduced defense spending;"

    •  

  • "Irreversible market-oriented economic reform, including price reform:" and

    •  

  • "A comprehensive agreement on Western lending to Warsaw Pact countries and Soviet client states which phases out government-guaranteed credits, untied loans (including Soviet bonds) and greatly enhances reporting requirements."

 

Secretary Weinberger cautions: "We have all seen the consequences of undisciplined, government guaranteed loans and bail-outs as we watch the $200 billion-plus S&L crisis, and much of that great burden will be borne by our taxpayers."

Mr. Weinberger also calls upon participants in the Economic Summit in Paris to adopt a policy of vigorous differentiation in Eastern Europe that involves the "stick," as well as the "carrot." He observes that: "While Poland and Hungary are making efforts to reform, East Germany, Czechoslovakia, Romania and Bulgaria are not. East Germany still remains one of very few cash producers for Moscow, and too often funds and helps carry out Soviet ‘dirty work’ throughout the Third World. There is every reason to be especially concerned about the diversion by East Germany of borrowed Western funds for purposes harmful to vital Western interests."

The Center notes that this same point is made in a powerful, hour-long television documentary, entitled "Follow the Money," that will be aired this evening at 10:00 p.m. on Public Broadcasting System stations nationwide. The film offers a detailed look at the adverse implications for Western security interests of undisciplined flows of economic, financial and technological assistance to the Soviet Union and its allies.

The excerpts of Secretary Weinberger’s speech released by the Center today are attached.

Nuclear Testing Negotiations: What is the Bush Administration’s Agenda?

Introduction

Today, the United States and the
Soviet Union resume negotiations at the
Nuclear Testing Talks (NTT) in Geneva.
The NTT negotiations have as their
immediate objective development of
improved verification arrangements for
the Threshold Test Ban Treaty (TTBT) and
the Peaceful Nuclear Explosions Treaty
(PNET). The two treaties were signed in
1974 and 1976, respectively, but have not
yet been ratified due, in part, to
concerns about the adequacy of their
existing verification regimes. The
parties have reached ad referendum
agreement on a verification protocol for
the PNET; it is now under review in
Washington and Moscow. Work is proceeding
more slowly on a counterpart protocol for
the TTBT.

Under the charter for the NTT
negotiations agreed to in September, 1987
by then-Secretary of State George Shultz
and Soviet Foreign Minister Eduard
Shevardnadze, completion of these
protocols were understood to be but
the initial goal of the NTT. The
ministers announced that “The sides
will as the first step agree upon
effective verification measures which
will make it possible to ratify the TTBT
and PNET, and proceed to
negotiating further intermediate
limitations on testing leading
to the ultimate objective of the complete
cessation of nuclear testing as part of
an effective disarmament process.” href=”#N_1_”>(1)

Incredible as it might seem, the
Reagan Administration came to understand
that the commitment to a step-by-step
negotiation on further testing
limitations may well be utterly
inconsistent with U.S. national security
requirements. In a major report to the
Congress submitted in September 1988,
President Reagan illuminated numerous
problems that additional constraints on
nuclear testing would entail for
America’s deterrent capabilities.

President Reagan left office before he
was obliged to deal with the inherent
inconsistency between the findings
reported to Congress and his earlier
commitment to the Soviet Union. It now
falls to President Bush to grasp the
nettle. This paper discusses why the
United States should decline to negotiate
further constraints on nuclear testing —
and why it should do so at the outset of
the resumption of the NNT negotiations.

Are Further Testing
Limitations in the U.S. Interest?

In response to a request from the
Senate Armed Services Committee and on
the basis of intensive interagency study,
President Reagan on 8 September 1988
supplied the Congress with a report
concerning “The Relationship
between Progress in Other Areas of Arms
Control and More Stringent Limitations on
Nuclear Testing.” This
report, together with detailed companion
analyses produced by the Departments of
Energy and Defense, clearly and
authoritatively describes U.S. nuclear
testing requirements. It discusses the
problems caused even by existing arms
control limitations on nuclear testing.
The Reagan report also provides a
withering critique of the idea of
imposing additional limitations on the
U.S. nuclear testing program. Its main
points (in excerpt form) are:

The Requirement
for Testing

  • “Nuclear testing is
    indispensable to maintaining the
    credible nuclear deterrent which
    has kept the peace for over 40
    years.”

  • “Thus we do not
    regard nuclear testing as an evil
    to be curtailed, but as a tool to
    be employed responsibly in
    pursuit of national security    .”

  • “The U.S. tests neither more
    often nor at higher yields than
    is required for our
    security.”

  • “As long as we must
    depend on nuclear weapons for our
    fundamental security, nuclear
    testing will be necessary.”

Why the United
States Tests Nuclear Weapons

  • “First, we do so to ensure
    the reliability
    of our nuclear deterrent.”

  • “Second, we conduct nuclear
    tests in order to improve the safety,
    security, survivability, and
    effectiveness     of our
    nuclear arsenal. Testing has
    allowed the introduction of
    modern safety and security
    features on our weapons. It has
    permitted a reduction by
    nearly one-third in the total
    number of weapons     in the
    stockpile since 1960, as well as
    a reduction in the total
    megatonnage in that stockpile to
    approximately one-quarter of its
    1960 value    .”

  • “Third, the U.S. tests to
    ensure we understand the effects
    of a nuclear environment
    on military systems.”

  • “Finally, by continuing to
    advance our understanding of
    nuclear weapons design, nuclear
    testing serves to avoid
    technological surprise
    and to allow us to respond to the
    evolving threat.”

  • “These four purposes are
    vital national security goals. As
    companion reports by the
    Departments of Defense and Energy
    indicate, they cannot
    currently be met without nuclear
    testing    .”

Reductions in
Nuclear and/or Conventional Arms
May Actually Increase U.S. Testing
Requirements

  • “…It is important to
    recognize that there is
    no direct technical linkage
    between the size of the nuclear
    stockpile and the requirements
    for nuclear testing    .”

  • “The first two reasons — to
    ensure the reliability of our
    deterrent and to improve the
    safety and security of our
    nuclear arsenal — are related in
    part to the number of
    different designs     in the
    U.S. stockpile.”
    • “Major reductions in
      the numbers of
      warheads      , such
      as the U.S. seeks in
      START, would not alter
      our requirements for a
      number of different types
      of weapons to meet the
      Soviet threat, and hence
      would not alter the
      requirement for testing
      them….”

    • “Indeed,
      under [an agreement
      providing for] deep
      reductions in strategic
      offensive arms the
      reliability of our
      remaining U.S. strategic
      weapons could be even
      more important       and the
      need for testing even
      greater      ,       particularly
      if the Soviets continue
      their current trends
      toward improved
      survivability.”
  • “Similarly, neither
    reductions in strategic offensive
    arms themselves nor success in
    conventional arms reductions will
    eliminate the third reason for
    U.S. nuclear testing, the
    requirement to ensure we
    understand, from both an
    offensive and defensive
    standpoint, the effects of the
    environment produced by nuclear
    explosions on military
    systems….Even in a
    world with reduced strategic arms
    and an improved balance in
    conventional forces, nuclear
    weapons will exist. In such a
    world, understanding nuclear
    effects would be no less
    important    .”

  • “As the number of
    nuclear and conventional forces
    decrease, the potential relative
    advantage the Soviets could gain
    from an unforeseen technological
    breakthrough increases    .
    To avoid being surprised by such
    a breakthrough, we must maintain
    and improve our understanding of
    the physics of nuclear
    weapons.”

Future Arms
Control and U.S. and Soviet Differences

  • “…There is no
    direct technical linkage between
    progress in other areas of arms
    control and the acceptability of
    progressively more stringent
    limitations on nuclear testing    .
    It is important to recognize the
    asymmetries between the United
    States and the Soviet Union in
    this regard.”

    • “Because of inherent
    differences in the two nations’
    approaches to their security
    requirements, stringent
    limitations on nuclear testing,
    or even its complete cessation,
    would have less
    impact on Soviet security than
    our own.”

    “The Soviet advantage in
    conventional forces, the less
    sophisticated designs of their
    strategic weapons, the ability of
    a controlled society to maintain
    design teams intact even without
    testing…all may allow the
    Soviets to be more willing to
    accept restrictions….”

Further Policy
Caveats

  • “…the U.S. recognizes that
    neither nuclear testing nor arms
    control per se
    are ends in themselves. They are
    tools to be employed in the
    interests of enhancing national
    security.”

  • “As a matter of policy, the
    U.S. has made no decisions
    regarding any specific
    limitations which might be
    considered following TTBT and
    PNET ratification    . Such
    decisions cannot be prudently
    made without an analysis of the
    specific details of arms
    reductions agreements in other
    areas.”

  • “…It is clear that
    limitations as stringent as a
    complete ban on tests above
    either 1 kiloton- or 10
    kilotons-yield pose
    serious risks     and will
    almost certainly not prove to be
    compatible with our overall
    security interests    . As
    the companion reports by the
    Departments of Defense and Energy
    make clear, such limitations have
    exceptionally severe
    effects on U.S. programs    .
    In addition, we do not
    know how to verify such yield
    limitations    .”

  • “A comprehensive test ban
    remains a long-term
    objective of the United States.
    We believe such a ban must be
    viewed in the context of a time when
    we do not need to depend on
    nuclear deterrence     to
    ensure international security and
    stability, and when
    we have achieved broad, deep, and
    effectively verifiable arms
    reductions, substantially
    improved verification
    capabilities, expanded
    confidence-building measures, and
    greater balance in conventional
    forces.”

The Challenge for President
Bush

It is incumbent on the Bush
Administration, as its stewardship of the
Nuclear Testing Talks begins, to clarify
how — if at all — its assessment of
U.S. national security interests and
requirements differs from that of
President Reagan, described above. Should
President Bush not establish forthwith
his view of the inadvisability of
negotiating additional limitations on
nuclear testing, he may find his options
for preserving vital American flexibility
sharply constrained as work on the TTBT
is completed and the pressure inexorably
builds to reach agreement on new,
intermediate constraints.

Recommended Actions

The following steps must be taken if
President Bush is to avoid the serious
pitfalls associated with the commitment
to further limitations on nuclear testing
he inherited from Ronald Reagan.

  • The Bush Administration
    should expressly reject the idea
    of further constraints upon
    nuclear testing.     The
    previous administration was
    unable to identify any
    limits beyond the TTBT consistent
    with U.S. security interests, and
    President Reagan clearly —
    albeit belatedly — warned,
    before leaving office, that there
    well may never be any.

    • National security will be
      disserved and President
      Bush’s credibility
      jeopardized if the United
      States now explicitly or
      implicitly affirms the
      earlier, ill-advised
      decision to pursue
      step-by-step limitations
      on testing once the
      present treaties have
      been renegotiated.

    • Even the best
      case       outcome of
      such negotiations, i.e.,
      that they will give rise
      to modest restrictions
      (such as a quota
      permitting a sizeable
      number of tests or
      reductions in the yield
      threshold of underground
      tests), would be
      unacceptable.

      • Such limits will, by
        definition, impose
        additional limitations on
        the flexibility vital to
        an effective testing
        program.

      • What is more, it is
        illusory to believe that
        test ban proponents will
        be either satisfied with
        — or permit themselves
        to be coopted by such
        modest constraints. The
        reality is that those who
        propose draconian limits
        on testing do so because
        they wish to cripple the
        U.S. nuclear program;
        they will not be
        satisfied with
        half-measures.
  • Instead, the Bush
    Administration should build upon
    President Reagan’s forthright
    explanation of the reasons for
    U.S. nuclear testing and for
    caution on considering new
    limits.     As President
    Reagan made clear, quite aside
    from very serious verification
    problems, the United States has
    fundamental requirements for
    continued testing at
    approximately current levels —
    and should make no apologies for
    maintaining a credible nuclear
    deterrent and conducting the
    tests necessary to do so.

  • President Bush should
    offer decisive leadership to
    those in Congress willing to
    resist legislative initiatives
    that would — by precluding a
    flexible test program     —
    cripple America’s ability
    to safeguard the reliability,
    safety and effectiveness of the
    U.S. nuclear deterrent.
    An important element of such a
    presidential effort must be an
    express willingness on the part
    of the Administration to veto any
    congressional efforts to impose
    further restrictions on U.S.
    testing.

  • The Administration should
    also maintain the high standard
    for effective verification of the
    TTBT and PNET set by President
    Bush’s predecessor, and insist on
    strict Soviet compliance.     If
    experience is any guide, the
    President will soon be beset by
    those encouraging a less
    demanding standard of
    verification (e.g., that seismic
    monitoring methods are “good
    enough” and that the
    alternative hydrodynamic
    measurement system demanded by
    the Reagan Administration —
    known as CORRTEX — is “too
    expensive” and unnecessary).

    • On-site CORRTEX
      measurements remain the
      most accurate means for
      verifying Soviet
      compliance with
      commitments under the
      PNET and TTBT.

1. Emphasis
throughout not in original.

Perle Assails German Leadership’s Incompetence In Dealing With “Gorbomania”

(Washington, D.C.): Richard Perle, former Assistant Secretary of Defense and member of the Center for Security Policy’s Board of Advisors, this week published a stinging rebuke of the leadership of West Germany and of policies vis a vis the Soviet Union it is embracing.

"The persistent pressure from the German government to relax the restrictions on military and sensitive technology goes in exactly the wrong direction because it enables Gorbachev to hope that he might have the best of both worlds. That is, that he might sustain the growth of Soviet military power by incorporating advanced technology in their new weapon systems, on the one hand, while saving resources for the restructuring of the economy on the other," said Perle.

Perle, a resident scholar at the American Enterprise Institute, sharply criticized West German export control practices in the German magazine, Der Spiegel:

"I am not for stopping the export of every PC. I think we want to draw the lines at an appropriate place. If it were up to Herr Genscher, I do not think there would be any lines at all. He would sell anything. And in this he has the full support of aggressive German capitalists who respect no limits, who sell missile system components to Iraq and Syria and equipment for chemical weapons to Libya — which is perhaps the most irresponsible industrial policy in the modern world. It is a scandal [what] Germany has been prepared to scatter around the world."

When asked if such criticism did not jeopardize the conservative government of an important ally, Perle replied: "I am not wedded to incompetent conservative governments."

Excerpts of an English-version of the full Perle interview with Der Spiegel are attached.

“U.S.-Soviet Trade Relations”

Testimony of

ROGER W. ROBINSON, JR.
President, RWR, Inc.,
former Senior Director for International Economic Affairs
at the National Security Council (1982-1985)

Before the U.S. HOUSE OF
REPRESENTATIVES
COMMITTEE ON FOREIGN AFFAIRS
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY AND TRADE

Mr. Chairman, I am very pleased to have the opportunity to
testify before the Subcommittee on International Economic Policy
and Trade on the subject of East-West economic and financial
relations.

The Subcommittee is appropriately gathering various
perspectives on several measures under consideration by the
Congress and the executive branch which could potentially lead to
a substantial increase in the USSR’s trade and financial ties
with hard currency countries, including, but by no means limited
to, the United States. Given perestroika’s failure, thus far, to
boost Soviet economic performance and living standards, there are
many indications that Moscow intends to expand the USSR’s role in
the international economy as a means of resolving at least some
of its key economic and hard currency earning problems.

President Mikhail Gorbachev has no doubt been impressed by
China’s success in carrying out domestic economic liberalization
and foreign trade reforms as well as establishing workable terms
of agreement with the GATT, the IMF, the World Bank, and the
Asian Development Bank (ADB) . Gorbachev may well assume, in
light of China’s current upheaval, that the USSR can somehow
capitalize on these developments and move onto a faster track —
with Western government assistance — in luring foreign capital,
investment and technology, and joining international financial
and trade institutions.

I believe it would be a serious mistake for the United States
and our allies to respond favorably to such appeals by Moscow for
several reasons, despite efforts to encourage a fundamental
transformation of the Soviet command economy and totalitarian
political system.

First, as the examples of China, Poland, Romania and others
have demonstrated, greater integration into the global economy
and large-scale infusions of Western capital, technology and
investment into command economies do not automatically assure a
transition into market-based reforms and necessary levels of
political liberalization. The large centrally-controlled economy
of the USSR remains fundamentally incompatible with the
market-oriented philosophy underpinning international trade and
financial organizations. A multi-year track record of systemic
economic and political reform — including across-the-board price
reform, deep cuts in military spending, termination of a massive
program to acquire illegally strategic Western technology, a
sharp curtailment of the resources expended to maintain a global
empire of impoverished client states, and genuine (not contrived)
ruble convertibility — should be established before the U.S.
supports Moscow’s bid for either observer status or membership in
the GATT, the IMF, the World Bank, the ADB or other such
institutions. Premature acquiescence by the West on this front,
as well as providing substantially expanded Soviet access to
Western capital and technology, is more likely to retard
structural economic reform than promote it. This prediction is
reinforced by the outcomes of similar Western efforts in Eastern
Europe over the past two decades.

Second, I am not yet persuaded that the USSR necessarily wants
to play or is capable of playing a constructive role in the
global economy. Structural economic reforms are not yet underway
in the USSR, as most Soviet economists admit. Moreover, Moscow
still finds it difficult to resist the temptation to recruit
Third World countries into adopting radical policies which
advance the USSR’s short-term political objectives — such as
endorsing Cuba’s efforts to catalyze the coordinated repudiation
of Latin American debts owed the international financial
community. Soviet participation in the U.N. and specialized U.N.
agencies is rife with such examples.

In addition, current friction between the United States and
its major trading partners, faltering progress in the new GATT
round, and increasingly tense North-South economic and financial
relations (stemming primarily from the international debt crisis)
, would provide the USSR with many new opportunities to further
“stir the pot” between the United States and its
traditional allies. We have already witnessed in the NATO context
Gorbachev’s mastery of playing off differences between Western
countries as a way of advancing Soviet strategic goals.

Finally, it is important to recognize that our most
significant export markets and opportunities lie in the
developing world, particularly Latin America, and in the Pacific
— not in the USSR and Eastern Europe. The Rand Corporation has
just completed a study of prospects for comparative economic
growth which clearly shows that Soviet bloc countries are further
declining in importance in the international economy. On balance,
I believe this could well be an irreversible trend for several
reasons, and ought to be reflected in U.S. international economic
policy priorities. For example, the payoffs of focusing our
priority attention on the dynamic economies of the Pacific Basin
and revitalizing economic development in our own hemisphere will
likely be enormous in terms of U.S. employment, global economic
growth, and enhanced Western security.

As far as the Soviet Union and Eastern Europe are concerned,
they should be encouraged to reform but held to strict standards
before being further absorbed into the global trading and
financial systems. In addition, Western taxpayers should be
insulated from this reform effort to the maximum extent possible,
beginning with the multilateral termination of Western government
guaranteed and direct credits. Such official loans and credit
guarantees are subsidies — pure and simple. They artificially
lower the interest rates and increase the size of credits as the
risk of any future debt rescheduling or default is transferred
from private commercial banks to Western taxpayers.

The Administration should also urge G-7 governments at the
upcoming Paris Economic Summit (July 14-16) to supervise the
voluntary phasing out of undisciplined, general purpose loans
from commercial banks to Soviet bloc borrowers (including bonds
and other securities). Western banks should be encouraged to
replace this kind of commercially unsound lending to sovereign
borrowers with tightly structured, specific purpose credits in
support of trade transactions and projects. Greater data
disclosure also needs to be demanded by Western lenders as a
precondition for continued Soviet and East European borrowing,
and current gaps in Western statistical reporting should be
closed.

In the field of human rights, I find myself in full agreement
with the position taken by a senior official of the Union of
Council for Soviet Jews in a recent letter-to-the-editor in the Washington
Post (6/9/89). It states that emigration from the USSR
should be an established right, not a privilege as is now the
case. President Bush is correct if he is demanding of Moscow the
codification and implementation of this basic right as a
prerequisite to any waiver of the Jackson-Vanik and related
amendments.

Concerning the prospect of restored Soviet access to U.S.
Export-Import Bank credits — this issue should be evaluated
separately from the conditions under which the United States
might grant MFN status. If, as Senator Bill Bradley and others
have suggested, Western government credits and loan guarantees
are taxpayer subsidies which should be ended multilaterally, then
the United States should not send the opposite signal to our
allies by restoring such U.S. credit subsidies. Moving ahead on
Eximbank availability would probably doom any executive branch
effort to forge a common alliance policy on this important issue.
In this connection, three virtually unanimous Senate resolutions
over the past 12 months calling on this President to discuss and
reach agreement with allied leaders on the security dimensions of
Western credit flows to Warsaw Pact countries and Soviet client
states, have, thus far, been ignored by the executive branch.

I have tried in the short time allotted to summarize my views
on most of the questions posed by the Subcommittee. A description
of the broader context in which to assess East-West economic and
financial relations and related issues are discussed in my
written testimony submitted for the record of these hearings.

The Future of U.S.-Soviet Relations: Economic Relations and Human Rights

Testimony of

ROGER W. ROBINSON, JR.
President, RWR Inc.
Former Senior Director for International Economic Affairs
at the National Security Council (1982-1985)

Before the
SENATE COMMITTEE ON FOREIGN RELATIONS

May 3, 1989


Mr. Chairman, I am grateful for the opportunity to appear
before the Senate Foreign Relations Committee on the subject of
U.S.-Soviet relations. As you are aware, East-West economic and
financial relations are the object of considerable attention
these days at the highest levels of the Soviet as well as
Alliance governments. Accordingly, this series of hearings held
by the committee are especially timely and important in eliciting
different perspectives on what is occurring within the USSR and
how the U.S. should best respond.

Kremlin leaders today often comment on the importance of
bolstering trade and financial ties with the West. The
traditional Soviet slogan of “peaceful coexistence”
with adversaries has given way to the goals of “economic
interdependence” and “global problem solving.” On
the surface, this potentially represents the greatest shift in
Soviet foreign policy since the end of World War II — one that
some believe may presage the end of the Cold War largely through
greater East-West economic and financial “integration.”

Gorbachev has launched his ambitious list of international
economic initiatives in tandem with an activist Soviet agenda on
arms control and regional disputes. The NATO Alliance, already in
significant disarray, is undergoing a profound period of
soul-searching on how to respond. President Bush is under growing
pressure to somehow compete with Mr. Gorbachev and come up with
his own ground-breaking initiatives.

While the Bush Administration has yet to announce the results
of its national security reviews, there has been considerable
speculation in the press that the major “new ideal”
will be a substantial liberalization of U.S. trade and financial
policy towards the East Bloc, beginning with Poland and Hungary
and extending to the USSR and Bulgaria (East Germany, Romania and
Czechoslovakia appear not to qualify for the new U.S. policy
approach at this time). If these reports are correct, the
Administration may be embarking on a course which could cause
incalculable harm to US national security and Alliance relations,
and whose potential commercial benefits would likely be modest at
best.

Gorbachev’s Economic Proposals: Old Soviet Wine in
New Bottles

At the outset, it is important to establish that the Soviet
strategy of creating East-West economic interdependence as a
basis for ending the Cold War is not new. Throughout the late
1960’s and 1970’s Premier Alexi Kosygin, Vladimir Alkhimov (then
Chairman of the Soviet Bank For Foreign Trade and later the State
Bank) and other Soviet officials vigorously courted Western
nations in search of large syndicated credits, joint ventures and
other long term trade, technical and financial agreements. Not
surprisingly, many of Moscow’s recent trade and financial
overtures toward the West are lifted directly from the Kosygin
playbook.

During the 1970’s the U.S. Congress remained skeptical about
the wisdom of accepting the Soviet offers. Dissatisfied with
Soviet human rights performance and concerned over Moscow’s
military build-up and expanding adventurism in the Third World,
the Congress passed a series of measures that moderated the
growth of economic and financial relations with the USSR until
these sources of bilateral tension could be substantially reduced
or removed altogether.

Then as now, the Soviets enjoyed their greatest success in
gaining converts in the Federal Republic of Germany, particularly
Chancellor Willy Brandt and the left-wing members of the Social
Democratic Party. The FRG, unlike the U.S., is not burdened with
the responsibility of containing Soviet global aggression outside
NATO and also tends to focus its human rights concerns more
narrowly. Further, Chancellors Brandt, Schmidt and now Kohl all
appear to view East-West economic and financial relations as the
linchpin of Germany’s Ostpolitik policy which centers on the
convergence of German and Soviet goals in Eastern Europe.

It is therefore not unusual that the FRG, of all West European
countries, responded most eagerly to Soviet economic initiatives,
as demonstrated by Bonn’s enthusiastic support for construction
of the huge Siberian gas pipeline project during the martial law
crackdown in Poland. The series of FRG export control violations
in chemical weapons, nuclear materials, and ballistic missile
technology sales to Libya, Iran, Iraq, Pakistan, India, and
Argentina which are currently embarrassing Bonn, are also
symptomatic of how independently the FRG perceives its national
interests. Increasingly, these interests fundamentally differ
with those of the United States and other NATO members.

The FRG also has the dubious distinction of being the largest
source of diverted militarily-relevant Western technology to
Warsaw Pact countries. In retrospect, this record of FRG
carelessness toward national security export controls was one of
the principal reasons why the Reagan Administration feared soviet
domination of West German natural gas markets that would have
created substantial new FRG vulnerabilities to Soviet political
and economic leverage.

The rise in influence of the Green environmentalist party and
nationalist Republicans may further advance prospects for
Ostpolitik and East-West economic interdependence on Soviet
terms. The emergence of a tacit “Red-Green-Brown”
anti-NATO coalition, which could dominate West Germany’s defense
and foreign policy decision-making, is now a real possibility.
Neutralist and anti-nuclear sentiments are clearly on the rise
among broad segments of the West German population — ironically
intensified by the recent INF agreement.

Against this backdrop, FRG Foreign Minister Hans-Dietrich
Genscher is urging the Bush Administration to follow the FRG lead
on East-West economic and financial policies. President Bush is
also being advised by some in the Administration to basically go
along with Bonn in the interest of “helping” Chancellor
Kohl revive his sagging domestic political fortunes.

As Chancellor Kohl goes about coopting the neutralist agenda
of his opponents, it would be unwise for the US to insert itself
into fluid FRG domestic politics by taking actions contrary to US
long-term security interests. It is equally unwise to try to play
to domestic political developments inside the Soviet Union by
trying to “help” Gorbachev. As Deputy National Security
Adviser, Robert Gates correctly states in a recent article in the
Washington Post:

“Gorbachev is challenging some aspects of this
[Soviet] system, but even he acknowledges he has not yet
significantly changed it. We cannot ignore the cyclical turn
to reform, detente, and foreign assistance each time the
system has faced catastrophe. For 70 years we have watched
the Soviets proclaim reform and turn to the West for help,
while at the end of the day the essential features of their
system remain unchanged.”

In this connection, the FRG has a regrettable tendency to
pocket U.S. concessions in East-West relations, then to ignore
the agreement involved and insist on further concessions. The
most vivid recent example is the compromise agreement reached at
a meeting of NATO Defense ministers in Brussels on April 20. The
agreement specified that the U.S. would back away from insisting
on an immediate decision by Bonn to modernize the aging Lance
short-range nuclear missiles in exchange for the FRG dropping its
request for speedy negotiations with Moscow on short-range
nuclear weapons and nuclear artillery. Approximately one day
after completion of this NATO agreement, Chancellor Kohl, spurred
on by Foreign Minister Genscher, publicly demanded early
short-range nuclear missile negotiations with Moscow and
dispatched Mr. Genscher and Defense Minister Stoltenberg to
Washington to press for U.S. acceptance of the “new”
German position. Unfortunately, this is precisely the kind of
scenario that is likely to unfold should the U.S. go down the
slippery slope of de facto support or silence concerning the
FRG’s current economic and financial agenda toward the Soviet
Union, Eastern Europe and Soviet client states — crafted by Mr.
Genscher.

A “Marshall Plan” for Eastern Europe

Ostpolitik has clearly produced significant gains for the FRG.
Through generous credit flows, Bonn has been able to repatriate
tens of thousands of ethnic Germans from Soviet Bloc countries.
The Bonn government has also been able to obtain a significant
relaxation of restrictions on cross border visits to East Germany
and to secure the release of numerous East German political
prisoners. In recognition of West Germany’s forward leaning
posture on arms control, Bonn is — as in the past — being
singled out for special attention by Moscow, which adds to the
FRG’s already substantial influence within NATO and the EC.
Finally, many West German firms find markets in the East Bloc for
exports that are not competitive in the West — making expanded
East-West trade a kind of government-sponsored employment
program.

It is therefore tempting to conclude that what has worked so
well for the FRG can also work for other NATO members, including
the United States. Under FRG prodding, the Alliance has
inadvertently created what amounts to a kind of “Marshall
Plan” for the East Bloc which is the envy of many developing
countries, given the lack of economic conditionality associated
with new credits.

The elements include:

  • Large-scale Western government support for East-West
    trade through multi-billion dollar subsidy programs, loan
    and credit line guarantees, and long-term bilateral
    agreements which amount to “managed trade”
    (especially prevalent in East-West agricultural trade);

  • Tolerance of large gaps in required data disclosure by
    Soviet Bloc borrowers and in Western reporting of
    financial transactions (e.g., the continued secrecy of
    inter-German financial flows, the omission of the
    indebtedness of Soviet-owned banks located in the West in
    calculations of overall Soviet indebtedness etc.);

  • Ad hoc emergency credit support so that formal debt
    reschedulings and the discipline of IMF/Paris Club
    economic programs can be avoided (e.g., Hungary in
    1987-88);

  • Tolerance of substantial arrearages to Western creditors,
    ostensibly to assist the borrower’s self-initiated
    “reforms”;

  • Significant debt relief for Soviet Bloc borrowers once a
    rescheduling is no longer avoidable, particularly in
    foregoing interest payments due to Western governments
    and taxpayers while commercial banks continue to receive
    substantial interest payments (e.g., in Poland);

  • Undue policy flexibility on the part of the IMF and the
    World Bank so that funds are, at times, released in
    the absence     of fundamental economic reforms;

  • Easy access to billions of dollars of Western untied
    credits (i.e., no questions asked about where the money
    is going or how it is being used) which has constituted
    the majority of new credits to Soviet Bloc borrowers in
    the 1980’s; and

  • Proposed eligibility for trade assistance programs
    originally intended for the developing countries such as
    investment guarantees and lower tariffs under the
    Generalized System of Preferences (GSP).

Western subsidies for East-West trade became so excessive by
the early 1980’s that a public clamor arose for their removal.
(Many Western trade unions were concerned that the subsidies were
financing the transfer of industries and jobs to communist
countries, where the labor force was under tight government
control and wages could be held down). As part of the allied
sanctions in response to Soviet-sponsored repression in Poland in
1981-82, the OECD began the process of raising the USSR to
Category I (developed country) status, which forced the Soviets
to pay market rates on government-backed credits. Despite this
progress, Bulgaria, Poland, Romania and Cuba still qualify for
potentially generous subsidies under OECD guidelines.

One of the cumulative effects of this Western government
support over the years was to boost significantly the credit
ratings of many Soviet Bloc nations, even in the wake of the
region’s deteriorating economic condition in the 1980’s. Members
of Congress became alarmed at the ready availability of
undisciplined Western credits at low interest rates to Soviet
Bloc borrowers as well as to Cuba, Nicaragua, Libya and Vietnam.
The U.S. Senate in 1988 passed two strong resolutions calling on
the Reagan Administration to engage in immediate high-level
consultations with the allies on the national security dimensions
of Western credit flows. Notwithstanding Secretary of State
Baker’s assertions that such policy discussions took place at the
Toronto Economic Summit in June 1988, no meaningful Alliance
consultations have yet occurred.

The Treasury Department did prepare a study on East-West
credit flows in November 1988 which, although inattentive to
national security concerns, highlights the preferential treatment
received by Soviet Bloc borrowers. According to the study:

  • Rates charged to Soviet bloc borrowers have often been
    lower than rates charged developing countries or even
    OECD borrowers     (OECD data show an average margin of
    24 basis points — one quarter of one percent — over the
    London Interbank offered Rate for syndicated credits to
    the Soviet Bloc in 1987, compared to 69 basis points for
    developing countries and 34 basis points for the OECD
    area).

  • Average spreads on bank loans to the Soviet Bloc have
    declined rapidly in recent years     despite the USSR’s
    own hard currency crunch and the debt crisis in Eastern
    Europe (the average spread on loans to the East Bloc
    dropped from 118 basis points in 1983 to 24 basis points
    in 1987).

  • By way of comparison, although most Latin American
    sovereign borrowers have been forced out of the voluntary
    syndicated loan market, largely noncreditworthy
    countries like Hungary and Bulgaria can still obtain
    loans with relative ease    , due to Western government
    support.

  • Whereas most credits provided to developing countries
    are tightly tied to specific purposes or conditions,
    credits provided the USSR have been largely untied    ,
    meaning that the loan proceeds can be more flexibly
    diverted by Moscow to finance activities harmful to U.S.
    national security interests (Between 1983 and 1987,
    untied credits averaged about 80% of the total volume of
    Western lending to the USSR).

Unfortunately the lack of meaningful Alliance-wide
consultations on East-West financial relations has left the Bush
Administration at a serious disadvantage in responding
effectively to FRG and Soviet initiatives as well as meeting the
challenges of developments in Poland and Hungary.

National Security and East-West Finance

There is no longer any doubt that, with the exceptions of
Czechoslovakia and the German Democratic Republic, the entire
Soviet empire is caught in the throes of an economic and
financial crisis. The reaction of East European governments has
been to assemble an eclectic mix of economic and political
reforms. Not having experienced free markets or capitalism in
decades, it is likely that most of these Stalinist command
economies will continue to find systemic reforms beyond their
reach.

The Soviet Union’s imposition of its failed centrally
controlled economic system on the countries of Eastern Europe is
the single most important cause of the region’s economic and
financial woes. It is ironic, however, that the West’s own
undisciplined largess bears a substantial share of the blame for
the debt overhang which inhibits economic recovery in Poland and
Hungary. As I have described, for more than twenty years Western
banks and governments have treated Soviet Bloc borrowers with
relative leniency. Regrettably, the wreckage of past economic
reform programs in Yugoslavia, Poland, Hungary, Romania and Cuba
represents a sad tribute to the misguided idealism of past
Western financial and trade policies.

Concern over continued undisciplined Western credit flows to
Soviet Bloc countries has prompted Senators like Bill Bradley,
James Sasser, Dennis DeConcini, Malcolm Wallop, Connie Mack,
Jesse Helms and others to ask the Administration not to finance
perestroika unconditionally. I share their concern, particularly
when evaluating the issue of how the Alliance can best assist the
people of Eastern Europe in a manner consistent with our national
security and human rights objectives. There appears to be an
emerging consensus in the U.S. that continuing the West’s
unconditional, untied lending policies will merely reduce the
pressure on the Soviets for fundamental reforms and allow them to
avoid or defer tough resource allocation decisions, including
reductions in Soviet defense spending and global adventurism.

Poland presents a particularly complex opportunity for Western
policymakers. The Alliance is inclined to respond positively to
the encouraging Roundtable Accords in Poland. After many years of
stalemate, General Jaruzelski has finally agreed to give the
democratic opposition a meaningful role in Polish politics.
However, he is now seeking Western financial support for an
undefined set of economic half-steps that will probably fail
under present circumstances.

This is a precarious moment for the Bush Administration, as
miscalculation on the proper elements and structure of a rescue
package for Poland will likely have severe long-term consequences
for the Polish people and for East-West relations in general. If
the Polish economy does not begin to show results soon, the
streets will again be filled with protesters and the government
will probably feel compelled to crack down, yet again, to
preserve its authority. Should this happen, Western interest in
Poland would likely dwindle, and Poland’s economy could remain in
a condition of stagnation into the next century.

Soviet “Burden-Sharing” in Poland

It is neither in the interest of the West nor the Soviet Union
to see this happen. Stability in Central Europe is of great
importance to both sides. There would be no winners should Poland
erupt into renewed turmoil. For this reason it is only sensible
that the Soviet Union share the burden of any Western rescue
package for Poland with substantial hard currency credits and
trade relief which should exceed, or at least match, those
resources offered by the West. By doing so, the Soviets would,
for the first time, demonstrate their tangible support for Polish
reforms and for the efforts of the IMF and the World Bank.
Barring major Soviet financial contributions, Poland will
probably fall far short of the estimated $25 billion in hard
currency credits and debt relief required over the next several
years to restart its economy.

Specifically, the USSR should be persuaded by Alliance members
to:

  • Sign a new treaty with Warsaw pledging that under no
    circumstances will Soviet troops intervene in Poland,
    thus assuring Western companies and banks of a secure and
    predictable investment climate.

  • Provide $5-10 billion dollars in immediate hard currency
    loans and guaranteed credit lines which would enable
    Poland to finance new industrial imports and help service
    its external debt.

  • Establish a multibillion dollar collateralized account
    (eg. funded by pledged oil and gold-generated hard
    currency earnings) to cover a substantial portion of new
    Western credit exposure in the event of future Polish
    arrearages;

  • Announce publicly its support for free market reforms and
    large-scale privatization of key industries under
    IMF/world Bank auspices;

  • Urge Poland to dismantle its bloated government
    bureaucracy which still administers thousands of
    enterprises and basic industries;

  • Permit Poland to cut by at least fifty percent its
    defense budget (estimated at $14 billion in 1986) and
    free up Polish industries and infrastructure which today
    are dedicated to producing components for Soviet weapons
    systems;

  • Offer Poland substantial trade relief by reducing the
    prices charged Poland for Soviet oil and stepping up the
    volume of oil deliveries;

  • Allow Poland to sell in Western markets many of the high
    quality manufactured goods now being shipped to Soviet
    enterprises;

  • Request Poland’s trading partners in Eastern Europe to
    run multi-year trade deficits with Warsaw as a way of
    contributing to Polish economic recovery, particularly
    the GDR, Czechoslovakia, and Bulgaria; and

  • Allow the Polish government to gradually withdraw from
    the Council for Mutual Economic Assistance, and resist
    the claims on Polish resources for wasteful joint CMEA
    projects, particularly in the energy cooperation and high
    technology areas.

The Soviets certainly have the creditworthiness, excess
borrowing capacity, and reserves sufficient to set up a sizeable
collateralized hard currency account. Soviet credit guarantees
which, in effect, would allow Moscow to borrow on Poland’s behalf
in international financial markets, can easily be established if
Gorbachev’s “new thinking” prevails. The Soviets can
obtain additional resources for Poland by trimming back their
expensive foreign aid programs to communist countries in the
Third World, and by using some of the savings from anticipated
defense cutbacks. An added benefit of insisting an this Soviet
“burden-sharing” policy in Poland and Hungary is that
it might make Moscow more flexible in arms control negotiations
and regional disputes in view of Soviet budget constraints.

Conclusion

Hopefully, the Alliance will recognize the unpredictability of
what Robert Gates terms “the cycles of Kremlin reform”
which have periodically unfolded over the past seventy years —
particularly the disappointing, and even dangerous outcomes for
the West. Secretary of Defense Cheney should be commended for his
candor and realism in recently responding to a central question
which is surely on the minds of most high-level Western
policy-makers — namely will Gorbachev’s perestroika succeed in
modernizing the Soviet command economy?(1)

Secretary Cheney’s pessimistic prediction is at least as
likely to be realized as those by observers who say that
Gorbachev’s perestroika is not a “temporary aberration”
but an enduring, fundamental reordering of traditional Soviet
priorities. Even if Gorbachev were to score successes with
perestroika, the West confronts a second equally important
uncertainty — whether this will result in a more inward-looking
and peaceful Soviet Union, or an economically stronger and more
dynamic adversary.

Given the major security implications of these questions — to
which no one has an answer and probably will not for some years
to come — it would be short-sighted for the Administration, the
Congress, the UK, France, Japan and other interested parties to
engage in a “riverboat gamble” concerning the direction
of perestroika. Specifically, this means resisting the apparent
Moscow-Bonn agenda of relaxed controls on militarily-useful
Western technology, continued and even expanded undisciplined,
taxpayer guaranteed Soviet Bloc borrowing, and the breaching of
allied energy security agreements which limit Soviet natural gas
deliveries to Western Europe to a prudent level.

There is also an urgent need, in the interests of Alliance
unity, to establish a new consensus on the financial relations of
NATO coutries with the USSR and its allies. Fortunately, Japan —
even prior to its present domestic political upheaval — has
quietly adopted a considerably more cautious approach to its
credit flows to Soviet Bloc countries (with the exception of an
inordinate share of untied lending to Hungary) than has its West
European partners. If continued, this development should be
viewed by the Congress as a major Japanese contribution to
Alliance defense burden-sharing.

Concerning Eastern Europe, the methodology for advancing the
encouraging political and economic developments in Poland and
Hungary needs to be reevaluated and coordinated at the highest
levels of the Alliance. I have outlined the direction such a
coordinated Alliance strategy could take in a Wall Street
Journal article (4/21/89), which is being submitted, along
with a more comprehensive paper of the Washington-based Center
for Security Policy, for the record of these hearings. It is
important that the Congress focus on the issue of major Soviet
trade and financial burden-sharing in Poland as a means of
limiting the open-ended Administration commitment of new U.S.
taxpayer credit exposure to Warsaw, and freeing up finite
resources of the IMF, the World Bank, and the Paris club for the
pressing requirements of numerous developing countries.

Finally, the appropriate fora for meaningful Alliance
consultations on these issues — as well as long-overdue
discussions and policy agreements on the security dimensions of
Western financial flows to Warsaw Pact borrowers and Soviet
client states — are the NATO Summit at the end of this month and
the Paris Economic Summit on July 14. If these crucial East-West
economic and financial security issues are to receive the agenda
prominence which they require, Alliance working groups need to be
established immediately at the Ministerial level.

1. Secretary Cheney stated,
“If I had to guess today, I would guess he [Gorbachev] would
ultimately fail. That is to say that he will not be able to
reform the Soviet economy to turn it into an efficient modern
society.” Cheney went on to say “And when that happens
he’s likely to be replaced by someone who will be far more
hostile than he has been in terms of his attitude towards the
West.” Cable News Network, Evans and Novak Report, April 29,
1989.

Why Would Anyone Want To Buy A Building Bugged By The KGB? New Reasons For Greater Transparency In East-West Trade

(Washington, D.C.): The State Department acknowledged this week that Dwayne O. Andreas has offered, on behalf of the American Trade Consortium (ATC)(1), to buy the partially constructed U.S. embassy in Moscow. Andreas is a controversial American industrialist, co-chairman of the US-USSR Trade and Economic Council (USTEC) and a principal in ATC. Work on the embassy stopped in August 1985, when analysis revealed that Soviet intelligence had systematically compromised the security of the facility by lacing it with eavesdropping devices. Last year, the U.S. government concluded that there was no way to defeat the KGB’s penetration of the embassy and that the structure would have to be razed.

Approximately $30 million dollars has already been spent on the construction project. Millions more have gone into the executive and legislative branches’ investigations into the causes and consequences of this security breach and examination of the options available for correcting it.

Hence, on its face, the offer by the ATC to buy the incomplete, compromised building appears to be a godsend. It would seemingly reimburse the taxpayer for vast sums wasted on this project. It would also offer a way to obviate a mortifying embarrassment for the American government and remove a significant irritant in U.S.-Soviet relations — assuming the Soviets would accommodate this transfer and find another site for a new embassy compound in Moscow. On closer examination, however, the Andreas-led proposal raises troubling questions, questions that argue for a hard look at evolving trade relations with the USSR and greater transparency in all East-West economic and financial transactions.

Facts and Discussion:

  • Even before its present economic crisis became evident, the Soviet Union had an aggressive program for acquiring Western technology through legal and illegal means.

    •  

    This program is multifaceted, aggressive and highly sophisticated. It employs every resource available to the Soviet government from the KGB to the USSR Chamber of Commerce and Industry, from military attaches to scientists, students and other individuals dispatched to the West.

     

  • According to the U.S. government(2), one facet of this acquisition effort is managed by the Military-Industrial Commission of the Presidium of the USSR Council of Ministers.

    • This effort "seeks one-of-a-kind military and dual-use hardware and blueprints to improve the technical levels of Soviet weapons and military equipment."

     

  • A second facet involves the Ministry of Foreign Trade and Soviet intelligence services.

    •  

    These agencies divert "dual-use manufacturing and test equipment into the production lines of weapons industries."

     

  • Naturally, American industrial concerns are prime targets for the Soviet Union’s technology acquisition efforts. So great is their appetite for U.S. equipment and manufacturing know-how that the Soviets have frequently been quite brazen in their collection efforts.
    • USTEC is a curious organization. It was chartered by the U.S. government in the Nixon administration to promote East-West trade. Incredible as it may seem, its membership list is classified by the Executive Branch, and yet it is without official standing on the American side.

      •  

    • For their part, of course, the Soviets regard USTEC as an important official activity; their participants are representatives and organizations of the Soviet government.

    •  

    One striking example was the assignment by the USSR of a Lieutenant General in the KGB, Yevgeniy Pitovranov, to the governing board of USTEC.

     

  • The evidence suggests that the Soviets’ brazenness is, at least in part, due to their confidence that Western capitalists will not be deterred from pursuing business opportunities in the USSR by repugnance over aiding the Soviet Union’s military and intelligence capabilities.

    •  

    This is a confidence level that can only have grown during the last years of the Reagan Administration. Commerce Secretary William Verity, himself a former co-chairman of USTEC, and Deputy Secretary of State John Whitehead placed high priority on legitimizing, facilitating and greatly expanding U.S. trade and financial relations with the Soviet Union, the Warsaw Pact countries and Soviet client states.

     

  • The selective indifference of some American businessmen to the penetration or exploitation of their services by Soviet intelligence has rarely been more palpable than in the willingness of ATC to buy a building custom-made by the KGB for espionage.

    •  

    Of course, surveillance is a fact of life in Moscow and the KGB seeks to penetrate U.S. businesses there wherever they were housed. That said, ATC’s apparent willingness to pay upwards of perhaps $90 million (for the present embassy structure and the costs to complete it) for the best KGB microphones money can buy, seems odd.

     

  • Indeed, the Andreas-led proposal and the State Department’s acknowledged support of it (i.e., "informal" discussions of this idea through diplomatic channels with the Soviets) raise a number of troubling questions:

      For example, would discussions take place there concerning future transactions for which export licenses have not yet been approved — risking serious breaches in technology security?

      Which banks or companies are prepared to finance the purchase of a building that has been described as a "KGB microphone"? Are foreign sources of funds to be drawn upon as well?

      Would this building be regarded as "surplus property," subject to the rigorous disposal procedures established under U.S. law?

      If private American citizens wished to purchase the building, for example, to operate it as a museum commemorating the KGB’s (and its predecessors’) offensive actions and techniques against the West — and against the Soviet people, themselves — would the State Department be as helpful?

    •  

    Given the complete penetration of the building by Soviet intelligence, what use would be made of such a facility by American companies?

    What are the terms and conditions for financing this acquisition?

    Will the purchase price, if the building is sold instead of razed, include only the cost of construction — or will it also reimburse the taxpayer for the substantial costs associated with ferreting out and assessing the implications of the breach of security at the embassy?

    What specific arrangements would be utilized by the U.S. government for transferring this facility, bought with taxpayers’ monies, to private hands?

    Does the apparent support of the U.S. government for the proposed purchase not smack of preferential treatment for the would-be buyers?

     

  • Questions like these deserve full answers. Perhaps the congressional hearings that produced such damning evidence of the penetration of the Moscow embassy could usefully be reconvened to elicit them.

Conclusions:

This proposed transaction and the issues it raises of questionable judgment on the part of the prospective purchasers and the executive branch underscore Secretary of State James Baker’s recent endorsement of the need for more transparency in East-West economic and financial relations.

There is a distinct possibility that the leak of the proposed purchase of the embassy may have been an important, if small, step on the part of the State Department toward fostering such transparency. Secretary Baker may be persuaded that the frenzy of concession-making conducted (largely behind the scenes) by his predecessor — particularly during the final, post-election days of the Reagan administration — must be terminated, even reversed. The following are but a few of these concessions to the Soviet bloc:

  • the former administration’s abandonment of its principled opposition to holding a human rights conference in Moscow in 1991 under the auspices of the Conference on Security and Cooperation in Europe (CSCE);

    •  

  • the Reagan administration’s reversal of long-standing U.S. opposition to convening an East-West economics conference in Bonn in early 1990 also under CSCE auspices;

    •  

  • approval over Defense Department objections of joint ventures offering the Soviets advanced automated controls with great potential for manufacturing chemical and nuclear arms;

    •  

  • conducting secret negotiations with the USSR aimed at effecting a quick settlement of defaulted czarist bonds. Resolution of this matter could clear the way for Soviet bond sales in the U.S. market for the first time. By definition, such Soviet bond sales would constitute untied, general purpose borrowing by the USSR, which is currently prohibited pursuant to the Johnson Debt Default Act of 1934;

    •  

  • indications of growing sympathy with efforts to repeal the Jackson-Vanik and Stevenson amendments inhibiting trade and financial transactions with the USSR;

    •  

  • campaigning for an end to the "no-exceptions" policy on technology transfers to the Warsaw Pact adopted by COCOM in 1980.

 

It is still unclear to what extent Secretary of State Baker was involved in or supportive of these "eleventh-hour" actions. However, his call for increased transparency in East-West economic and financial transactions would — if realized — make their pursuit without full, informed debate much more difficult in the future.

– 30 –

1. The member companies of the American Trade Consortium include Archer-Daniels-Midland, RJR Nabisco, Eastman Kodak, Johnson & Johnson, Chevron Corporation, Ford Motor Company and the Mercator Corporation (a merchant bank whose president is James Giffen, former president of USTEC).

2. "Intelligence Collection in the USSR Chamber of Commerce and Industry," U.S. Department of State, 1987.

Genscher’s Second Major Coup in Helsinki Negotiations Imminent: U.S. Set To Retreat On An East-West Economics Conference

(Washington, D.C.): Barring immediate
intervention by President-elect George
Bush and Secretary of State-designate
James Baker, the United States is about
to yield to accomodationist pressures
from West German Foreign Minister
Hans-Dietrich Genscher to hold a major
East-West economics conference in early
1990. The conference will be co-sponsored
by Soviet Bloc countries. This dramatic
concession will likely have severe
consequences for Western security.
Moreover, it stands in stark contrast to
long-standing U.S. opposition to a
similar North-South economics conference.

Senator DeConcini, co-chairman of the
Congressional Helsinki Commission, along
with other members, has consistently
opposed this economics conference.

Such a step should immediately be set
aside pending an opportunity for
high-level review by the incoming
Administration and the Congress.

Facts and Discussion:

  • The United States has long
    opposed an FRG/Czech proposal for
    a conference on East-West
    economic and financial issues.

    • The US made a modest
      effort over the past
      several months to push a
      follow-on environmental
      conference as an
      alternative.
  • It has been learned, however,
    that Secretary Shultz has decided
    to accede to Genscher’s demands
    despite well-founded U.S.
    reservations.

  • As a result, the Conference on
    Security and Cooperation in
    Europe (CSCE) member nations are
    poised to agree to begin an
    economics conference to be hosted
    by the Bonn government as early
    as March, 1990.

  • While the United States did
    succeed in scaling back the West
    German proposal somewhat (for
    example, conference participation
    will not be at as senior a
    political level, as desired by
    the FRG; there will be no
    follow-on session in
    Czechoslovakia; and COCOM
    controls will not be on the
    formal agenda), the emerging
    framework for this conference is
    rife with dangers for Western
    security interests.

    • Indeed, the odds are
      great that a
      “runaway”
      process has been
      initiated which could
      lead to the dismantling
      of NATO’s most important
      economic and financial
      security programs.
  • Although Secretary Shultz
    reportedly made the decision to
    accept the FRG conference
    initiative early last week and
    immediately informed Bonn, other
    alliance partners were not
    officially notified for several
    days.

    • Canada, for one,
      reportedly remains
      opposed to the
      conference.
  • The modalities for the conference
    are still under discussion
    between the U.S. and the FRG. So
    far, it has been agreed that:

    • The conference will last
      three weeks (instead of
      the five weeks envisioned
      in the original
      proposal);

    • there will be no
      final report;

    • at least four
      substantive working
      groups will be
      established:

      • energy and raw
        materials conservation
        (potentially of great
        strategic benefit to the
        USSR)

      • environmental
        protection

      • agro-industrial
        production (possibly
        including biotechnology
        and other sensitive
        technologies high on the
        list of technologies
        whose transfer to the
        Soviet bloc is proscribed
        by COCOM)

      • and machinery for
        production of
        “durable and
        non-durable consumer
        goods” (which will
        afford the USSR and the
        FRG still other
        opportunities to attack
        NATO’s COCOM controls)
  • The U.S. apparently has also
    agreed to a fifth working group
    governing East-West financial
    relations at the urging of the
    FRG.

    • Topics would include
      financial instruments in
      East-West trade offered
      by the banking sector
      (such as bonds),
      bank-to-bank cooperation,
      and even ruble
      convertibility.

    • Further details are not
      yet available, but if the
      fifth working group is
      established it would
      represent a major new
      breakthrough for
      Genscher’s payola
      approach to Ostpolitik,
      sometimes referred to as
      “Economic
      Genscherism.”
  • This conference is, accordingly,
    a dubious — if not highly
    dangerous — enterprise for,
    among others, the following
    reasons:

    • Security: It comes at a time
    when the West should be using its
    economic and financial leverage to press
    for genuine, fundamental reforms in the
    Soviet system, not bailing out that
    system. The Senate has overwhelmingly
    adopted two resolutions since June, 1988
    regarding the urgent need for the
    Administration to achieve coordinated
    alliance policies on the national
    security dimensions of credit flows and
    guarantees to Soviet Bloc countries and
    their client States.

    • The proposed conference
      could easily undermine
      progress toward this
      goal. It could also
      jeopardize signed
      alliance agreements
      which, in effect, prevent
      undue West European
      dependency on Soviet
      natural gas supplies in
      the 1990’s and
      twenty-first century.

    • U.S. taxpayers are likely
      to encounter a
      multi-billion dollar
      annual cost in additional
      defense and foreign
      assistance spending
      should the next
      Administration fail to
      secure alliance
      cooperation in these
      policy areas.

    Precedent: Even if the outcome
    of the first conference appears
    innocuous, there are bound to be
    follow-on conferences at which the
    Soviets would be able to exercise more
    influence over the agenda — and the
    results.

    Negotiating Leverage: Even at
    this first conference, the Soviets are in
    a strong position to “whipsaw”
    Western countries who often come to the
    table with separate and competing
    agendas.

    Sovereignty: The United States
    is making a strategic error in agreeing
    to negotiate its policies in a forum in
    which non-NATO countries can influence
    strongly the policy outcome. These are
    matters that should remain in the NATO or
    U.S.-Soviet context.

    Dilution of Process: The CSCE
    negotiations are designed to achieve a
    balanced outcome in human rights, arms
    control, and political and economic
    cooperation.

    • Historically, it has
      proven exceedingly
      difficult to maintain
      alliance discipline on
      insisting on real and
      parallel progress in all
      three areas.

    • In particular, Western
      governments are
      susceptible to pressures
      (from the Soviets,
      domestic constituencies
      and Bonn) to accelerate
      economic and financial
      concessions even in the
      absence of what should be
      required progress in
      these other areas.

    North-South Relations. The
    high-debt less-developed countries (LDCs)
    and developing countries would be
    justifiably angry in regarding this
    development as an effort by the OECD
    countries to tilt the international
    economic and financial playing field in
    favor of the Soviet Bloc — leaving the
    LDCs and developing democracies even
    further out in the cold during the
    1990’s.

    • Almost all Soviet Bloc
      borrowers already receive
      substantially lower
      interest rates and more
      generous terms and
      conditions on loans from
      Western banks than, for
      example, Latin American
      debtor nations, not to
      mention government
      guaranteed credits.

    • The U.S. will pay the
      biggest political price
      for this lopsided
      approach because most of
      the large debtor nations
      are located in our
      hemisphere.

      • Indeed, the decision
      to proceed with the
      East-West economics
      conference begs the
      question: Where do U.S.
      economic and political
      priorities lie — with
      our massive economic
      interests in Latin
      America or in bailing out
      failed Warsaw Pact
      economies?

      Does the U.S.
      government now favor a
      parallel North-South
      economics conference?

Conclusion:

This major economic initiative comes
in the immediate aftermath of the
astonishing U.S. acquiescence to Soviet
and allied pressure to hold a CSCE human
rights conference in Moscow in 1991 —
another Genscher priority. Such an
economics conference would greatly
advance the Soviet economic and financial
offensive toward the West at a time of
seriously inadequate alliance policies on
the critical security dimensions
involved. The extent to which
Secretary-designate Baker was involved in
this decision is unknown, but it is
doubtful that he was uninformed — as
some reports indicated concerning the
human rights conference decision. The
Bush Administration wisely postponed
jumping into a new round of START
negotiations pending a comprehensive
reassessment. Given the similarly high
stakes, it should do likewise concerning
future economic and financial relations
with Soviet Bloc countries and their
client states.