A Deal in the Pipeline

When he became Secretary of State five months ago, soft-spoken George Shultz inherited one of the most emotional and dangerous disputes to rock the Western alliance in the entire postwar period. It began with the crackdown in Poland. To punish the Soviets for their role in the affair, President Reagan was determined to use economic sanctions to halt or delay construction of the $10 billion pipeline that would carry Soviet natural gas from Siberia to Western Europe. Reagan banned sales of American products for the pipeline, but then outraged his European allies five months ago by extending the embargo to cover equipment made by U.S. subsidiaries abroad and by foreign firms operating under U.S. licenses. United in defiance, Britain, France, West Germany and Italy rejected the U.S. move, charging that it amounted to an infringement of national sovereignty.

During the smoldering stalemate that ensued, Shultz quietly began trying to persuade both Reagan and the European allies to accept a broad East-West trade agreement that would end the damaging confrontation over the pipeline.

After arduous negotiations with the West Europeans, the Canadians and the Japanese, Shultz and Under Secretary of State Lawrence Eagleburger last week succeeded. At week's end the President announced that the sanctions would be lifted in the context of a vague gentleman's agreement among the allies on the conditions of East-West trade. The decision, said Reagan, was "a victory for all the allies."

Under terms of the agreement, said Reagan, the Western nations pledged "not to engage in trade arrangements which contribute to the military or strategic advantage of the U.S.S.R. or serve to preferentially aid the heavily militarized Soviet economy." Particular attention would be paid to the sale of high-technology goods, including those involved in oil and gas production. The allies also agreed to undertake an "urgent" study of alternatives to the importation of Soviet energy supplies, and promised to sign no new contracts with Moscow for natural gas imports until that study was completed. As part of the arrangements, the allies vowed to tighten existing controls on the sale of strategic items to the Soviets, and to "harmonize" their credit policies in East-West commerce.

According to U.S. negotiators, the Europeans, especially the French, repeatedly tried to water down the language of the proposed compromise in the belief that Reagan needed a deal before this month's U.S. mid-term elections. The French were particularly opposed to raising interest rates on government-subsidized loans to the Soviet bloc, arguing that such a move would give unfair advantage to West Germany and Japan. Prevailing interest rates in those countries are lower than in France, so West German and Japanese companies can afford to give cheap credit to the East without government subsidy.

Another French demand was that the exact substance of the anti-Soviet understanding must remain a secret. On that point, Reagan gave in: the agreement is known semi-officially as a "non-paper." However it is described, the understanding that allowed Reagan to lift the sanctions on the pipeline was hailed by most West European governments. Ever anxious to stand by their principles, the French, however, issued only a cryptic statement declaring that they were "not a party to the agreement."

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