No. 160 I The Heritage Foundation 214 Massachusetts Avenue N.E. Washington, D.C. 20002-4999 (202) 5464400 January 2, 1982 STRATEGIC TRADE WTH MOSCOW US. LEVERAGE IN THE POLISH CRISIS INTRODUCTION Twice within a week, President Ronald Reagan announced measures designed to encourage the lifting of repression in Poland. In his pre-Christmas address to the nation, the Presi d ent imposed sanctions on the military junta now ruling Poland. in a December 29 statement, Reagan pointed the finger of accusation directly at Moscow, saying that "the Soviet Union bears a heavy and direct responsibility for the repression in Poland.lI Th e n Because of the continuing and, it seems, mounting Soviet role in suppressing Polish freedom, the President imposed seven immediate economic and technology'sanctions on the U.S.S.R. and concluded with the warning that he ttwill be watching events in Pola nd closely in coming days and weeks. Further steps may be necessary, and I will be prepared to take them."

The White House is correct in concentrating on America's economic and technological leverage it is surely the most powerful means available to influe nce Soviet behavi0r.l Economic and technological ties with the Communist bloc, moreover, are Some have argued that the most effective and.strategically significant embargo would involve wheat rather than technology. See Marie Lavigne Les Relations Economi ques East-Ouest (Paris, 1979 esp. pp. 73-

7. Regarding the effectiveness of a well-implemented grain embargo, see Paige Bryan, "The Soviet Grain Embargo," The Heritage Foundation Back grounder No. 130 (January 12, 1981 For various economic options avail able to the West for retaliation against So v iet intervention in Poland see William L. Scully, "The Polish Dilemma: Soviet Vulnerabilities and Western Opportunities," The Heritage Foundation Backgrounder No. 154 October 19, 1981 Note: Nothing written here is to be construed as necessarily reflecting the views of The Heritage Foundation or as an attempt to aid or hinder the passage of any bill before Congress. 2 I Y matters requiring intensive review even without the Polish crisis. The events of the past month, however, give the Admini stration a comp e lling reason to examine carefully the policy of U.S. trade with Moscow It is clear that the West, and the U.S in particular, needs to maintain lltechnological lead-time It or qualitative superiority, to compensate at least in part for Soviet quantitative a dvantages in key defense areas. Dr. Ellen C. Frost, Deputy Assistant Secretary for International Economic Affairs at the Department of Defense, explained To the extent that we can delay the acquisition by adversary nations of vitally important technologie s and their associated end products by placing controls on exports, we are serving a very important national defense interest of precious lead time.2 The Soviet invasion of Afghanistan two years ago an event condemned even by the U.N. General Assembly, a b ody whose sympa thies do not usually lie with the U.S. prompted former President Carter to tighten U.S. trade with the Soviet Union. President Reagan has been working to define U.S. trade policy with the Soviet bloc since he took office in January of 19

81 . On September 16, 1981, Assistant Secretary of Commerce for Trade Administration Lawrence J. Brady told the Subcommittee on International Economic Policy of the Senate Committee on Foreign Relations that the Administration was conducting a careful review of this policy. Even before the events in Poland, Brady stated his own conclusion: IIOur feeling is, based on the policy review, that we may have to tighten strategic trade controls on goods and technology which can upgrade Soviet production in areas rele v ant to [Soviet] military strength," in order Itto protect our national security interests The key concept is the preservation TIGHTENING THE LAX SYSTEM The present system of trade with the members of the Warsaw Pact is, indeed, seriously lax In view of th e situation in Poland, and in terms of U.S. long-range security interests measures could be taken to preserve the U.S. technology advantage and deny Moscow the benefits of Western innovations. measures available to the President are: Among the 1) Determini n g what items are especially significant strategically to the Soviet Union.3 The current licensing system Testimony before the Committee on Foreign Affairs, House, 96th Congress First session, May 1, 1979, Extension and Revision of the Export Admini strati on Act of 1969, Part 2, p. 15.

The high technology embargo of January 1980 involved a suspension, and not a revocation of validated licenses for exports to the Soviet Union.

See Wayne A. Schroeder, "Soviet-American Technology Transfer and United States Na tional Security," Ph.D. Dissertation, University of Southern California, January 1981, p. 351. 3 is hopelessly flawed. Licensing criteria, for example, are open to judgment and analysis on the part of licensing officer Delayed budgeting, understaffing, in efficiency, and lack of coordination, moreover, make the Export Administration office at the Commerce Department \{ lone of the most controversial, ill mannered, and frustrating programs in Washington.Its The current lists of 'Icriticalt1 technologies are hig hly deficient: many items that have clear strategic implications such as trucks and pipeline equipment6 must be included. A more sophisticated approach to the development of an adequate list of items not to be sold to the Communist bloc is needed. Hence, t he President's intention to expand the list of oil and gas equipment in need of licensing is a step in the right direction 2) Preventing the flood of Ifinformation leaks" to Soviet students and other Soviet representatives. In 1979 alone, over a thousand S oviet business people and over eight thousand East European business visitors, scientists, industrialists, all essentially unsupervised by American intelligence, obtained information from U.S. industries. Besides documented cases of espionage and theft, t h e Soviet Union has also used student exchange programs to obtain valuable technical information from the U.S.7 These leaks are dangerous. When the President reviews U.S.-Soviet science and technology exchange agreements, he must look very carefully at the entire spectrum of information exchanges 3) Rejuvenating the international Coordinating Committee (COCOM composed of the NATO nations (excluding Iceland, but including Japan policy for trading with the Soviet Union.8 Western leaders agreed at the Ottawa S u mmit in July 1980 to Itconsult to improve the present system of controls on trade and strategic goods and related technology with the U.S.S.R.Il involve closer coordination of national licensing procedures and COCOM was formed in 1950 to set a control Thi s commitment should Talbot S. Lindstrom and Paige Bryan, "Strategic Economic Policy: Geopoli tical Survival in the ~O'S," National Defense, April 1981, p. 19.

See Jack D. Verona's Testimony before the Senate Governmental Affairs Committee on September 24, 1980.

Jonathan Stein, "Soviet Energy: Current problems and future options Energy Policy, December 1981, pp. 301-3

15. Also, Steven C. Goldman and Wayne A. Schroeder, "The Geopolitics of Energy," Policy Review, Summer 1981, vol. 17, and David Fairlamb Finlandization' of Europe Dun's Business Month, November 1981.

David E. Hoppler The National Security Implications of Stragegic Techno logy Transfer," University of Southern California Defense and Strategic Studies Program, Working Paper 3-81, May 1981, pp. 62-64.

For a 'cogent study of COCOM and multilateral controls, see Wayne A. Schroeder, Ph.D. Dissertation, op. cit pp. 129-132. 4 greatly expanded enforcement efforts. At the COCOM meetings scheduled for the end of this month, especially in light of the P olish situation, President Reagan is expected to press for more determined European moves to tighten strategic trade with the Soviet Union. He should do the same when he meets with the members of the Tripartite Commission a mechanism formed at the Ottawa s ummit, which serves as a new forum for U.S Japan, and the European Economic Community to deal with steel, autos, high technology products, services, investments, subsidies, dumping and other areas of conflict in East-West trade relations 4) Limiting sharp l y U.S. requests for exceptions to the COCOM list. In the past decade particularly, American requests for exceptions have skyrocketed, soaring from 1.6 percent in 1962 to 25.6 percent in 1970, and to a staggering 62.5 percent in 1978.9 Given that the COCOM list is already rather lax because of relatively more Ifliberallt European attitudes toward East-West trade, this not only suggests an overly eager U.S. desire for trade at the expense of national (and, in general, Western security, it also belies the arg u ment that "foreign availabilityv1 would deny the U.S. lucrative trade opportunities with the U.S.S.R 5) Developing an adequate system of determining accurate ly and convincingly Itforeign availability.Il No such system is currently available.1 For example IIA Foreign Availability Assessment for the Semiconductor, Electronic Components and Instrumentation Industries a study by a private research group submitted to the Department of Commerce on August 29, 1980 concludes that Ira system for making foreign ava i lability assess ments during the decade of the 1970's did not exist and such assessments were made on an ad-hoc basis Moreover the report said that interviews with government administrators and industry representatives indicated that determination of fore i gn availabil- ity was not a significant factor in reaching decisions on export licensing cases. The U.S. still has the competitive edge over other Western producers in several areas, such as computers machine tools, radar components, jet engines, satellit e reconnais sance systems, and a myriad of seismic tools for oil exploration of which underwater listening devices are the most sensitive.ll But even in many areas where the U.S. appears not to have a competitive edge, a thorough study of actual foreign av a ilability which must take into consideration comparability in quality as Lawrence J. Brady, testifying before the Permanent Subcommittee on Investi gations of the Committee on Governmental Affairs U.S. Senate, 96th Congress, Second session, Transfer of Te chnology to the Soviet Bloc February 20, 1980, p. 21 See Connie Freisen, The Political Economy of East-West Trade (New York Praeger Special Studies, 1978).

Costick, The Strategic Dimension of East-West Trade (Washington, D.C American Council for World Freedom, 1978 lo Brady, ibid p. 64 l1 Another useful study is by Miles M.

P 5 well as production rates, will reveal that the U.S. is in a superior bargaining position.12 6) Developing a workable plan of reciprocation. Short of a total economic embargo, it wou ld seem expeditious to develop a system of exchange whereby strategic materials some of which are available in the U.S.S.R could be obtained by way of payment for American goods.13 7 Developing a cautious credit policy that would jeopardize as little as p o ssible the strategic interests of the U.S present, there is a serious repayment problem. The $27 billion Polish debt to the West is especially alarming and default could cause enormous problems for the Western banking system. The total Warsaw Pact debt to the West, according to CIA estimates is nearly $80 billion. These debts give the U.S.S.R. tremendous political leverage, which would be aggravated even further by increased Western dependence on Soviet oil 8) Continuing a firm policy on U.S. involvement i n the Siberian pipeline project currently under negotiation with the Western nations. Both the House and Senate (the former on July 21, 1981, the latter on October 7, 1981 have voted on resolutions disapproving U.S. participation in the Soviet Yamal natura l gas pipeline. These resolutions urge U.S. congressmen to support the President in his efforts to establish allied cooperation in developing alternative Free World energy sources. decision on December 29 to stop the sale of pipeline equipment indicates th a t he recognizes the seriousness of the issue At The President's 9) Establishing a uniform U.S. trade policy for the Cornu- nist bloc a result of applying the January 1980 trade embargo only to the Soviet Union is dangerous and self-defeating.14 explaining the details of the U.S. position so that the American public, as well as the European community, understands the princi ples behind the policy and sees its relevance to recent Soviet Present technology leakage through Eastern Europe 10) Coordinating an in formation and public relations campaign l2 Eagle Research Group Final Report to Department of Commerce Office of Export Administration A Foreign Availability Assessment Program for the Semiconductor, Electronic Components and Instrumentation Industries,"

August 29, 1980, pp. 2-

3. Chromite, cobalt, and titanium are cases in point. See Dr. Daniel I.

Fine, "Mineral Resources Dependency Crisis States," World Affairs Council of Pittsburgh, 18th World Affairs Forum The Resource War in 3-D, June 17, 1980, p. 46.

Walter E. Williams, Strategic Minerals Disruptions (Washington, D.C l3 Soviet Union and United Also James T. Bennett and The Economic Impact of Supply The Heritage Foundation, 1981 l4 See Wayne A. Schroeder, "Technology Transfer and U.S. National Security,"

Militaiy Science and Technology, forthcoming. 6 actions. The support of Senators Jesse Helm s of North Carolina and Strom Thurmond of South Carolina, together with the strong backing of AFL-CIO President Lane Kirkland, should prove useful in this effort 11 Reconsidering the bill introduced by Senator Jake Garn of Utah on September 24, 1980, call ing for a separate Office of Strategic Trade to administer the export administration system mandated by the Export Administration Act of 19

79. Passage of this bill would assure that export control responsibilities with in the government would be consolida ted, and procedures would be established for assuring that U.S. foreign trade would be carried out with the security of the U.S. firmly in mind. the Office would be staffed with well-trained technical personnel able to make the complex analyses required b y the Act of 1979 It is likely that the bill will be reintroduced in February 1982 For example A HISTORY OF HELPING THE RUSSIANS Adopting these recommendations would impose a stiff penalty on Moscow for its behavior in Poland way to remedy the deplorable p r actice of the U.S. and the West 0 of providing the Soviets with valuable military technology which certainly has helped build today's threatening Soviet arsenal. Legally and illegally,15 U.S. businessmen have been supplying the Soviet military with sophis t icated technology and equipment for years. Usually on credit 0- at times from the Ex-Im Bank, the U.S. government agency originally set up to finance trade with the U.S.S.R. the products of American high technology research have been flowing to the Commun i st bloc. This bolsters Soviet military capabilities, which then must be countered by the U.S at great cost to the American taxpayer. For example, the Zil truck plant, which manufactures military vehicles such as missile launchers and armored personnel car r iers, was built with the help of the U.S which provided almost $13 million worth of computers and spare parts. And the American contribution to the Kama River plant 0- which produced trucks found in Afghanistan 0 was, by conservative estimates 500 million . (Actually, Kama River is manufacturing not only 10-ton multiple-axle heavy duty trucks but also armored personnel carriers heavy assault artillery, rocket launchers, and dual-use transport vehicles It would also go a long l5 See the excellent expos6 of i l legal trade with the U.S.S.R. in the Septem ber 1981 issue of New West entitled "The Spies Among Us Senatqr Henry Jackson of Washington, the intelligence community has estimated "that between 1973 and 1977, $150 million of Western embargoed goods were ill e gally shipped to the East," Congressional Record-Senate May 2, 1980, p. S 4505 According to 7 Such sales have a negligible impact on the U.S. balance of trade: in 1979, for example, before the Carter embargo, total American sales to the U.S.S.R. amounted t o no more than 2 percent of all U.S. exports, of which no more than 05 percent involved high technology goods great enough to justify Washington's violation of the principle of free trade Yet the strategic significance may be The case of government contro l of East-West trade deserves careful assessment A good many economists, even those who concede that our defense budget might be lower if the Soviets were denied access to Western technology, are nevertheless opposed to any U.S. embargoes on the ground tha t free trade, as a rule is the only sound policy. If Washington does not sell so the argument goes, European competitors will, and the U.S. will lose a lucrative market. In fact, however, in many areas, the U.S still enjoys a monopoly.

Union is almost as old as the Bolshevik revolution itself.

Indeed it took Lenin no more than two years to conclude that "one cannot .be satisfied with the collapse of capitalism necessary to take all its science, technology. Without that," he wrote, "we will not be able to b uild Communism Potentially strategic Western and U.S. trade with the Soviet It is As soon as he realized that his economic policies were not working, Lenin started luring capitalist businessmen a policy continued by Stalin. And the U.S. was eager to coope r ate.. The famous five-year plan of 1928-33, still thought by many to have been a remarkable Soviet achievement, was very much the product of American management and engineering. Stalin himself acknow ledged this in 1944 when he told the president of the U . S. Chamber of Commerce that two-thirds of the large industrial projects in the Soviet Union had been built with American assistance. Antony Sutton's exhaustive three-volume study, Western Technology and Soviet Economic Development (published by the Hoover Institution in 1968, 1971, and 1973), conclusively demonstrates the staggering extent of the U.S. contribution to its main adversary's present might ing trade with the U.S.S.R., the Soviets had benefited immensely from the extravagant U.S. war-time ventur e called Lend-Lease.

Under this arrangement, the Soviets received $2.6 billion worth of American non-military goods, plus $8.5 billion in military hardware, including $1.25 billion of the latest American industrial equipment This was in addition to more th an $10 billion worth of industrial and military equipment dismantled in Germany and shipped to the U.S.S.R. in what has been called 'Ithe greatest and most systematic looting of any defeated country in the history of the war.1116) The U.S. is still waitin g for the Soviet Union to pay its Lend-Lease debt By 1949, when the U.S. passed the Export Control Act restrict l6 Carl Gershman Selling Them the Rope Commentary, April 1979. 8 C I d Broken contracts, disrupted operating and export plants, and rejected inv o ices followed during the Stalinist regime; still Western businessmen were not discouraged. predictable realization that he too needed Western technology was greeted by many capitalist businessmen with undisguised enthusiasm. When the Soviet leader announc e d in 1959 that the U.S.S.R. would buy whole factories U.S. businessmen started supplying designs and specifications, process technology, engineering capability equipment, as well as startup and training programs. Some fifty complete chemical plants were o r dered from the West between 1959 and 1961 Thus Krushchevls Many of the chemical plants built then and in the later sixties had direct military applications. Fertilizer plants, for example, are easily adapted to produce explosives a fact well known at the t ime, though the U.S. nevertheless continued to supply the Soviets with the needed equipment less than a year after the Cuban missile crisis, there were congressional warnings against the military implications of selling to the Soviets 10 million worth of p otash mining equip ment by the Joy Manufacturing Company of Pittsburgh the warnings, Congress approved not only that deal but also a series of ten fertilizer plants arranged by Armand Hammer's Occidental Petroleum Corporation In one instance Ignoring One important restraint, at least, was imposed in 19

61. President John F. Kennedy barred the export of ball-bearing machines produced by the Bryant Chucking Corporation of Vermont on the ground of strict national security. The Soviets waited patiently, convin ced that the U.S. would eventually succumb to pecuniary temptation.

President Nixon, at the advice of Henry Kissinger, approved the deal. As warned, the ball-bearing equipment soon was being used by the Soviet military. Four years later, Defense Intellige nce officials informed Congress that the bearings could Ilnow be used in the guidance equipment of Soviet missiles.11 turned out to be one of the most important decisions of the Nixon Admini~trati0n.l This persistence was rewarded in 1972 This sale has Sh o rtly after the Republican victory in 1968, Congress liberalized the Export Control Act, making it much easier to trade with the Soviets; by the time of the 1979 Afghan invasion the list of strategic items which the U.S. was selling the Russians had become truly staggering. According to Lawrence Brady, during l7 The military application is fairly straightforward: these grinders reduce the friction of moving parts in the guidance mechanism of a MIRV warhead, thereby enabling the missiles to change direction in flight rapidly, and thus get sharper on-target capability The Soviet Military Power as a Function of Transfer from the West," in See Miles M. Costick An Analysis of U.S.-Foreign Trade Policy (Sterling, Virginia America's Foundation, 1979).

Young 9 the p ast ten years the U.S. sold the Communists semiconductors array transform processors, computers, machine tools, chemical processes, and turnkey projects combining Ron-strategic and strategic technology. Some specific examples: an RB-211 turbo fan engine, s uitable for bombers (developed with 300 million in U.S. government research and development grants bought by the Soviet Union from Lockheed; technology sold by Litton Industries now being used to help Soviet planes and ships track American submarines a 11 0 /1OC Sperry-Univac computer, personally approved for sale by Carter in 1978, now being used by the Soviets to improve their Backfire bomber; and space suits that cost the U.S taxpayer about $20 million apiece to develop have been sold the Russians for a m e re 150,000 each In the face of such evidence, how could Washington even consider continuing to sell strategic goods to the Kremlin rationale is accepted even by some conservatives; they believe the old argument that if the U.S. does not sell the item to M o scow, then someone else will, and that embargoes are therefore useless One THE FOREIGN AVAILABILITY ARGUMENT In the first place, the data base for deciding whether goods are available from a non-U.S. source is, according to Lawrence Brady and other expert s , often "weak to nonexistent Indeed the chief offender in seeking waivers of the general Western embargo known as COCOM) against strategic traffic with the Communists has been the U.S. rather than its allies. Specifical ly, in 1962, the U.S. made only 1.6 percent of the 124 requests for exceptions, but by 1978, U.S. exception requests had escalated to 62.5 percent out of a total 1050.

The Soviets, moreover, often prefer to do business with U.S giants like IBM and Control Data, sometimes even when a Europea n competitor offers them a lower price. Marshall Goldman points out-in his 1975 study, Defense a( Dollars Soviets, that in such cases as the Kana River truck plant the Russians were set on having America help them build it; they felt Doing Business with t h e that American equipment and engineering- were the best available and they wanted top quality, regardless of the cost. discussions with Soviet officials always leave the impression that Russians are mesmerized by size, and only the U.S. comes close to ma t ching the size of the Soviet market. important is the fact that in many cases such as the Bryant precision bearings, the space suits, and, at present, many types of computers the U.S. produces the best equipment in the world. The national computer industr i es of West Germany, Great Britain, France, and Italy trail the U.S. firms. (Moreover, the Soviet Union may well have trouble adapting to changes in techno logy if it shifted exclusively to European suppliers In addition Still more 10 i The foreign availab i lity argument is so thin at times that it raises serious suspicions about its validity when applied in other, less easily verifiable instances. Carter used it, for example, in the summer of 1978 to justify his approval of a controversial sale by Dresser I n dustries of a $144 million turnkey plant for the manufacture of deep-well oil drilling equipment even though a Defense Science Board task force headed by Texas Instruments President J. Fred Bucy had declared categorically that the technologies involved we r e Itsolely concentrated in the United States Senator Henry Jackson charged that Carter had simply succumbed to Commerce Department and Dresser Industries pressures and ignored opposition by a National Security Council task force. Indeed, the Dresser sale included a computerized electronic beam welding machine that can be used to manufacture jet aircraft and has nuclear as well as laser applications.

The evidence indicates that no accurate and convincing system of determining "foreign availabilityt1 exists as yet. In his testimony before the Permanent Subcommittee on Investigations of the Committee on Government Affairs, Lawrence Brady said on February 20, 1980 a]n arbitrary selection of fifty consecutive national security cases from 1978 reviewed by my Spe c ial Assistant Paige Bryan, in response to a Freedom of Information request, revealed a recommendation of approval in every instance by the Commerce Department. Nearly three-fourths of the approvals were recommended primarily on the evidence- of foreign av a ilability No sources for the data used to'assess foreign availability are qiven in any of these cases. When asked, however, licensing officers cite: industrial sources, company brochures, the Bureau of Standards, and other governmental agency studies. In n one of these cases was it suggested that the State Department had been asked to negotiate with the governments of foreign producers in order to secure the elimination of possible foreign sales to the Communist countries emphasis added Actually, a number o f businessmen appear quite ready to concede the shakiness of the foreign availability argument in many cases computers, for example but nonetheless claim that the U.S. should sell the Russians such sophisticated items because it will be profitable in the l ong run.

Soviets so the thinking goes will need to buy maintenance equipment from U.S. suppliers who then will have a corner on the market for years. The evidence, however, seems to build an altogether different scenario study, the Soviets have already cop ied many different types of U.S. integrated circuits, including computer logic and memory chips from practically all the major U.S. microcircuit manufactur ing facilities.18 with a relatively insignificant investment After all, the According to a 1981 Pen t agon l8 Caspar Weinberger Soviet Military Power, Government Printing Office September 1981, p. 74.i 11 therefore the Soviets reap the benefits of billions of dollars of our research and development. And the computers, of course, have military uses. IBM 36 0 and 370 computers, for example, are believed to be the mainstay of the Warsaw Pact's air defense system. The complex of Western-manufactured radar devices and computers in MOSCOW'S Vnukovo Airport traffic-control system gives the Soviets air-defense cont rol capabilities they were unable to design themselves.

Perhaps the most important aspect of commercial relations with the Eastern bloc, however, is their questionable ability to pay for the goods they buy early as 1977 when IIonlyl 40-$45 billion was owed the West.

Today that debt totals nearly $80 billion reported on February 22, 1977, that many observers were becoming concerned about the possibility of Soviet blackmail was echoed in March 1981 by Senator T hurmond, who told Congress Soviet bloc debt was alarming as The Wall Street Journal That concern U.S. policymakers should never lose sight of the fact that these huge outstanding Soviet debts to our banks serve to compromise needed policy decisions for fe ar of endangering payment.

Though U.S. and international banks probably now realize that the Soviets and the Warsaw Pact countries are bad credit risks, the banks continue to increase the loans to avert massive defaults.

In effect, the lending banks have thus become l'hostagel' to their debtors.

The only hope the Western banks seem to have of being repaid is to continue to foster East-West trade that a Communist payment failure could start a banking panic in the West. In this sense, the Communists have th e West both ways as long as the joyride lasts they get massive infusions of techno logy, essentially free. When it concludes, they could sink the banking system The great danger is To make matters worse, American firms have trained hundreds of Soviet tech nicians in the U.S ostensibly looking into possible purchases have toured defense related American plants.

A member of one group, which closely inspected the Boeing, Lockheed, and McDonnell-Douglas factories in 1973 and 1974, admitted privately to a Boeing official that purchases had never been contemplated meaning of course that the real purpose of the trip had been industrial espionage. As for so-called student exchanges those who come from the U.S.S.R are usually experienced engineers, scientists, and m a nagers of research and development establishments who concentrate on study programs in the U.S. in semiconductor technology, computers, and other fields of applied research Teams of Soviet specialists 12 i I WHY DOES TEE U.S. DO IT If Soviet behavior is r eadily explicable, the same does not appear to be true of the West. The U.S in particular, seems anxious to overlook the costs both financial and psychological of trade, especially strategic trade, with the Communist bloc.

One reason might be the fact that not everyone is affected equally TO be sure, the higher Pentagon budget needed to respond to the more sophisticated Soviet technology is borne by everyone.

Companies like Control Data and Bryant Chucking, however, still appear to come out ahead, at least in the short run. One might think that businessmen too would be among the most concerned about contributing to the growing power of a nation whose leaders are dedicated to the eradication of capitalism. But some U.S. weapons manufacturers seem eager, eve n impatient, to do business with the Soviets. According to John Markoff, writing in the July 7 and 21, 1980 issue of Inquiry magazine, Ilsome of the corpora tions at the very heart of the defense establishment" were angry at Jimmy Carter's embargo on strat e gic goods to the U.S.S.R. because they found themselves "having to forgo lucrative trade opportunities in the name of national defense I' Lucrative indeed, when we need to improve out defense capabilities to catch up with the Soviets who with our help kee p updating their war machine ness has been raised, is willing to stand up for their nation's security interests. The Washington-based Investor Responsibility Research Center reports that shareholders in over two dozen companies were asked in 1981 to vote o n resolutions to terminate business and trade relations with Communist countries. One California group, Stockholders for World Freedom, has proposed that Occidental Petroleum report the extent of its trade with the Communist bloc. Another member of the gro u p has asked Rockwell International (the Defense Department's fifteenth largest military contractor) to cease all trade with the Communists reads in part as follows There are signs, however, that the public, once its conscious The resolution Rockwell, as a prime defense contractor, ought not to be helping [Communist] threats to world peace and free societies. We should instead direct our resources toward our own economy and our Free World Allies If you are considering voting against this proposal merely out of an abstract sense of political tolerance, consider further that you would be voting against the best long-run interest of yourself, your family, your corpora- tion, and your free country.

Yet the resolution contains a fatal flaw. Rockwell's Board To th e extent that foreign trade with a particular country or countries is considered to be inconsistent with United States Government policy objectives, controls of Directors responded c i 13 or embargoes are properly in our view are imposed. Decisions on the se matters in the domain of the Government and not in the domain of corporations It is thus up to the government to make the policy on strategic trade with the East.

TOWARD A WISER POLICY A great number of Americans would probably support an embargo on the sale of high technology goods to the Communist countries were it possible to demonstrate beyond refutation that such a move would be absolutely effective in protecting U.S. national security at a reasonable cost. While absolute proofs may be in a rigid l ogical sense impossible, the evidence should convince all but the most obdurate skeptic that the West must take tougher steps to slow or even halt the transfer of critical technology to the East.

Opting for an embargo, however, is still a long way from imp osing it effectively. The first problem is to determine with some degree of accuracy what items qualify as strategically significant enough to warrant controls It has been argued, for example, that everything we sell, including wheat, contributes to the g r owth of the Soviet military insofar as assistance from us frees funds for the Soviet war machine. That argument is not without merit, the President's decision to lift the grain embargo notwithstanding. Another important matter involves trade with the Sovi e t satellites. The Carter embargo, for example, was not directed against the satellites but only against the Soviet Union. Understandably, the predictable leakage weakened consider ably the credibility and effectiveness of the embargo.lg A cardinal rule of economic warfare is that it must be pursued seriously; how else are we to enlist the help of our Western allies in this endeavor? This help, indeed, is crucial, not only because the allies already have access to many American strategic items but also beca u se future U.S. developments will be difficult to keep secret to say nothing of advances the allies will make on their own Finally, a problem of growing difficulty is deciding how to keep strategic military technology from reaching our own commercial marke t s devices developed under the very hi h speed integrated circuit program of the Defense Department. 28 Although the Pentagon will One case involves the very complex function microcircuit l9 2o See Richard N. Holwill, ed A Mandate for Leadership Report: Th e First Year (Washington, D.C Reported in the February 16, 1981, issue of Aviation Week Space Techno The Heritage Foundation, 1982 Chapter 6 logy. 14 t seek export controls on these devices to prevent their reaching Communist countries, program director La rry Sumney has admitted that similar processing will probably find its way into U.S produced devices intended for the consumer-industrial market.

Some of the contractors involved in producing these devices also have overseas affiliates or subsidiaries; sho uld they be denied this technology specifically, in materials and physical processes needed to achieve submicron geometrics, which is the next phase of the program? Normally, basic research is not subject to export controls; should this be an exception An d what about further research in other areas Despite these problems, the issue must be confronted.

Especially at this time when the U.S. is seeking ways to penalize the Soviet Union for interfering in the affairs of Poland, and preventing further possibly even military involvement there, the control of strategic trade is an excellent lever. The opportunity is here, and millions both in Poland and in America are waiting.

Juliana Geran Pilon, Ph.D.

Policy Analyst I I