Why Europe defies US on the pipeline

Monitor reports from major West European capitals make it clear why the allies are defying the United States over the Soviet gas pipeline deal.

1. They are angered by the apparently high-handed way in which the Reagan administration included them in its own sanctions against Poland and the Soviet Union. They say Washington failed to consult with them before unilaterally extending its trade ban to pipeline parts made in West Europe under US license.

2. They note that President Reagan, under pressure from his own farmers, ended the US grain embargo against the Soviet Union. His decision then to impose , and enforce on his allies, a technology embargo (which hurts West European industry much more than US industry) is considered unfair and inconsistent.

3. They are perturbed at the possible loss of jobs from such an embargo - especially at a time when high US interest rates are already complicating West Europe's recovery from recession.

4. They doubt the need or effectiveness of such an embargo. They suspect that , in fact, it does more damage to West Europe than East Europe. And they fear that Moscow is the biggest winner from the acrimonious rift created in the Western alliance.

5. They are concerned about being asked to break contracts already signed in good faith with the Soviets.

The Reagan administration disagrees. It feels strongly that the Soviets and Poles should pay a price for Warsaw's imposition of martial law. It is convinced that full alliance participation is essential if sanctions are to carry any weight. It fears that the West Europeans risk making themselves overly dependent on Moscow for their energy needs, and that the Soviets will reap major hard currency gains, if the gas pipeline goes ahead. It insists it has the legal right to extend sanctions to parts made under US license in West Europe.

Reports from five major West European capitals amplify the positions of the European allies on this issue, currently the biggest bone of contention between them and Washington: William Echikson reports from Paris:

By ordering French companies to openly defy the American technology embargo, France has stepped out in front of its European partners in the growing dispute over the Soviet gas pipeline and other trade issues.

But after last week's strident rhetoric describing the Paris-Washington rift as a ''progressive divorce,'' Foreign Minister Claude Cheysson later tried to tone down his statements by saying: ''We bless God and heaven that we are on the same boat with the United States.'' As for divorce, he said: ''In every good matrimony one talks about divorce.''

As with the other European countries, the French have a lot of exports and jobs at stake with the pipeline - something the Socialists cannot afford with unemployment running at 8.9 percent and with the country's trade deficit worsening.

Alsthom-Atlantique, the state-owned company ordered to defy the embargo, stands to lose $700 million on its contract to supply 40 General Electric-designed rotors. Thomson-Brandt, also state-owned, has a $600 million contract to supply a computer control system for the pipeline and will be hard-pressed to fulfill the order without using American-embargoed parts.

And if the pipeline is significantly delayed, the biggest French loser will be Greusot-Loire, which as comanager of the entire project with West Germany's Mannesmann expects its part of the pipeline to bring almost $1 billion in revenues.

Public opinion here is strongly behind the French government's firm stand. ''The American embargo is a direct attack on the national sovereignty of the countries involved,'' wrote an indignant editorialist in the Socialist paper Le Matin, approving its government's defiance of the US. ''Can Washington seriously envisage us declaring 'economic war' on the Soviet Union?''

And even the normally anti-Mitterrand Le Quotidien agreed with the Socialist President in his action. ''The American administration seems to treat Europe like some banana republics,'' it wrote in an editorial. David K. Willis reports from London:

The British are taking a lower-key approach to the pipeline dispute than France. A spokesman for the Foreign Office told the Monitor: ''The alliance is still solid.''

But the spokesman went on to express the underlying irritation here: that the United States was acting without sufficient consultation behind the scenes and had created friction that could have been avoided, or at least lessened, with more care.

Britain's secretary of trade, Lord Cockfield, said July 26 that the US pipeline embargoes in Europe were ''wrong and unprincipled.'' He told the House of Lords he hoped the issue would be solved by talks, but if not, Britain would defend its national interests.

The issue is difficult for London, however, which must balance its own desire to trade with possible US retaliation against companies that help build the Soviet project.

Britain sees two issues at stake: the US cannot tell British-based companies what to do - and the US is undermining long-term confidence in American business by suddenly deciding to abrogate commercial contracts already signed.

And London, like Paris, Bonn, Rome, and other capitals, is upset that President Reagan wants Europe to deny itself business, while the US goes on selling grain to Moscow. If the US were serious in wanting to embarrass the Soviets, officials say, it should embargo its own grain at once.

The pipeline dispute is intensified by coinciding with another over steel exports to the US. There are only two weeks left now, after a last-minute flurry of talks in Washington, Brussels, and London, to avert US levies of up to 40 percent on Britsh steel exports to the US. American steelmakers say European steel is priced unfairly low because of government subsidies.

Britain will suffer most, since its nationalized steel industry receives massive amounts of government funds.

The pipeline issue itself is something of a dilemma for Prime Minister Margaret Thatcher. She is as staunchly anticommunist as President Reagan. She shares his desire to deny new technology and hard currency to the Soviet Union because of its actions toward Poland.

She agrees that the Polish government's recent actions in freeing some political prisoners and talking about a possible end to martial law sometime in the future are unsatisfactory.

But she is under great pressure to save British jobs, especially in Scotland, where the John Brown Engineering Company has a contract worth more than (STR)100 million ($178 million) to supply turbines to drive Siberian natural gas along the pipeline to West Germany.

John Brown obtains the rotors for the turbines from General Electric in the US via Alsthom-Atlantique in France, which makes them under license.

The Protection of Trading Interests Act in Britain allows the government here to order John Brown to ignore the US ban on any US subsidiary abroad selling rotors that end up in the USSR. But the law does not allow officials to order companies to sell items abroad if they choose not to do so.

The Department of Trade has invoked the first stage of the act by asking companies to tell it if they feel they are under duress from the US. Nothing else has been done. Whether London goes further depends on talks now being held.

In a comment typical of many here, the Guardian newspaper summed up recent US attitudes as showing little sign of straying, ''if not from isolationism, then at least from a new insulationism. There is not merely a feeling that one hand is unaware of what the other is doing; there is a failure to draw wider conclusions about the consequences of American policy.'' Howard Reason reports from Bonn:

President Reagan's sanctions on the Siberian-European gas pipeline have taken transatlantic relations to their lowest ebb for decades, West German officials and commentators say.

Egon Bahr, one of the architects of Bonn's ''Ostpolitik'' of reconciliation with communist Eastern Europe, said last week that the Reagan administration's foreign policy record after 18 months was uniquely negative. ''If Moscow had put an agent in a high office in Washington, he probably could not have done more damage,'' Mr. Bahr wrote in the weekly newspaper of Chancellor Helmut Schmidt's Social Democratic Party.

That view, couched in only slightly more diplomatic terms, is shared by most Bonn policymakers. As Mr. Schmidt and Economics Minister Otto Lambsdorff stump the American lecture circuit this month, pleading for Washington to reverse its stance, lawyers and diplomats are studying the legality of extending US sanctions beyond United States territory.

The Neue Ruhr Zeitung, a big newspaper in West Germany's industrial heartland , where the pipeline project is securing several thousand recession-threatened jobs, summed up the feeling of most West Germans.

''The Soviets are supposed to be punished by German and French firms for martial law in Poland. The real victim is the Atlantic Alliance and Moscow is the 'laughing third party,' '' the paper's editor wrote.

The Essen firm AEG-Kanis, a subsidiary of the financially troubled AEG-Telefunken group, has contracts to supply 47 gas turbines, including parts made under license from General Electric Corporation. Mannesmann, also in the Ruhr, is supplying the steel pipe. Ruhrgas, one of the country's biggest energy firms, has signed for 10.5 billion cubic meters of gas annually when the pipeline goes on stream in 1984.

The Bonn government has no legal powers to compel firms to ignore the sanctions, but is likely to give them strong political support unless Washington changes its mind. In the absence of any sign that the sanctions may be lifted, European officials and companies are discussing ways of producing the embargoed pipeline components in Europe to circumvent the ban. Carolyn Friday reports from Rome:

Italy has also made clear its intention to defy the Reagan administration's ban on participating in the construction of the Soviet gas pipeline.

Returning from a three-day visit to the United States July 24, Italian Foreign Minister Emilio Colombo announced that the agreement signed last October between the Soviet Union and Italian firms ''would be honored.''

In an interview published by Milan's daily, Corriere della Sera, Mr. Colombo expressed his displeasure with US policy.

''The serious fact is that the present American administration favors the unilateral method of making decisions over methods of consensus and consultation with its allies,'' Mr. Colombo said in an interview given after his meeting with US Secretary of State George P. Shultz.

The Italian decision is not surprising, following the sentiments expressed in Brussels last week by Italian Industry Minister Giovanni Marcora, who urged a united stand by all the European Community (EC) countries in its dealing with the United States.

''The problem is a political one. Only a uniform stand by all the EC countries can induce the United States to review the decision on the technological review,'' he said.

Of the Italian firms participating in the pipeline, only Nuovo Pignone, a subsidiary of the state-owned energy concern, ENI, fell under the Reagan edict prohibiting subsidiaries of US-owned companies from selling parts for the project. Nuovo Pignone signed a $700 million contract with the Soviets to produce 19 of the 41 compressor stations in the pipeline. However, the firm was counting on parts supplied from General Electric to complete the project. A Foreign Trade Ministry official said it would be possible to buy the needed parts elsewhere and proceed with the project ''once the political storm is resolved.''

The pipeline issue is raising both political and economic concerns in Italy. On the political front, the Italians fear the US policy is causing a dangerous rupture in the Western alliance, and that, according to Mr. Colombo, is eventually going to play right into the Soviets' hands - ''a gift to Moscow on a silver platter.''

But the Italians also have reason to fear that the ban could poison EC-Soviet relations, with the economic repercussions falling squarely on European businesses. Last week, Vittorio Merloni, president of the powerful Italian Industrial Confederation (Confindustria), received a veiled threat of reprisals from Moscow's Prime Minister Nikolai Tikhonov.

''Mr. Tikhonov said failure of Italian firms to meet their obligations on the pipeline deal would have implications, consequences for Soviet-Italian trade overall,'' said Mr. Merloni. He added, however, the Soviet official did not spell out exactly what those consequences would be.

While trade with the Soviet Union represents a little less than 1 percent of Italy's total trade, it is nonetheless an important consideration. The Soviets supply approximately one-quarter of Italy's gas needs. Due to the rising cost of Italy's energy imports, its trade deficit with the Soviet Union rose considerably last year, and Italian officials have been counting on the pipeline to rectify the imbalance. Gary Yerkey reports from Brussels:

The Belgian government last week decided to postpone indefinitely signing an agreement with the Soviet Union for delivery of natural gas through the controversial pipeline.

''It's possible that we will be able to do without Soviet gas altogether,'' a government spokesman said, adding that Belgium had been in line to receive 1 billion to 3 billion cubic meters of the roughly 28 billion cubic meters to be delivered annually to several European countries through the pipeline.

The spokesman said the decision was made because of an expected decline in domestic gas consumption over the next few years, the apparent willingness on the part of the Dutch government to increase gas exports, and, perhaps most important, the failure of the Soviet Union to award a single pipeline construction contract to a Belgian company.

Companies in France, West Germany, and Italy have signed contracts worth about $3.4 billion, but none of those companies so far has seen fit to subcontract work to Belgian firms.

Government sources emphasized that there was no link between the decision and the Reagan administration's determination to punish Moscow for its role in Afghanistan and Poland

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