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46. Summary of Conclusions and Minutes of a Policy Review Committee Meeting1

SUBJECT

  • US-Soviet Economic Relations

PARTICIPANTS

  • White House
  • Vice President
  • Denis Clift
  • Domestic Policy Staff
  • Stu Eizenstat
  • Robert Ginsburg
  • State
  • Richard Cooper
  • Richard Vine
  • Marshall Shulman
  • Treasury
  • Sec. Blumenthal (Chairman)
  • Anthony Solomon
  • Marjorie Searing
  • Defense
  • Charles Duncan
  • JCS
  • Gen. Smith
  • CIA
  • Adm. Turner
  • Robert Bowie
  • Energy
  • Harry Bergold
  • Commerce
  • Sec. Kreps
  • Frank Weil
  • NSC
  • Zbigniew Brzezinski
  • Samuel Huntington
  • William Hyland
  • Robert Hormats
  • Timothy Deal

The group agreed that trade was an important aspect of overall US-Soviet political relations even though the volume of trade was small relative to the size of the two economies. MFN and credits clearly mean more to the Soviets than to us, primarily because of their political symbolism. MFN would not result in substantially greater Soviet exports to the US.

The Jackson-Vanik and Stevenson amendments2 have largely failed in their principal objective, that is, to put pressure on the Soviets to permit increased emigration of Jews and other minorities. The Jewish community in the US has begun to understand this and now may be amenable to some change in the legislation if that would facilitate emigration. Some participants doubted, however, that the Con[Page 192]gressional sponsors and supporters of the legislation are willing to consider amending the legislation, at least at this time.

The group agreed that timing was crucial. Presently, we have a number of major policy initiatives that are or will shortly come before the Congress (e.g. Canal treaty, SALT, energy program). We will need the full support of Jackson and other key senators. Thus it would be a major tactical mistake to launch an Administration initiative to repeal or modify the Jackson-Vanik and Stevenson amendments now. But this would not rule out low-key, exploratory discussions with Jackson and others about the desirability of revised legislation, the best means to effect such a change, and what we want from the Soviets in return for modification in our policy.

Present restrictions in the Trade Act deny the President adequate flexibility in dealing with the Soviets. The ability to offer MFN and, perhaps, credits could be a valuable tool. We should be able to use that tool to our advantage, but that will not be possible without a change in the law.

However, before deciding on Congressional tactics, we should first attempt to develop a coherent East-West trade policy. We need answers to some basic questions. What are we trying to accomplish through expanded trade? Is increased trade a goal in itself? Should we attempt to link movement in the trade area to progress on other issues? Should the linkages be to internal issues in the Soviet Union (e.g. emigration, human rights) or to Soviet external behavior (e.g. their policies and actions in the Middle East, Africa, etc.). Some participants expressed concern about “overloading the circuits”, that is, asking too much from the Soviets in return for MFN and credits.

The papers prepared for the meeting3 outlined four strategies for dealing with the Soviets: (1) reduced engagement—a more restricted approach to trade relations designed to increase Soviet isolation from the West, slow Soviet economic growth, and put pressure on their resources; (2) status quo; (3) limited new engagement—an approach emphasizing use of “carrots” and “sticks” to control the pace of Soviet interaction with the US and world economy; and (4) enthusiastic engagement—a forthcoming approach intended to lead to full normalization of economic ties. The Chairman (Sec. Blumenthal) pointed out that the status quo (2) and limited new engagement (3) options were the only realistic alternatives. He suggested, as a working hypotheses, that we seek to define more closely what we mean by limited new engagement leaving aside, for the moment, questions on timing and tactics.

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There is an important difference between giving the President tools which enable him to be more flexible in his dealings with the Soviets and actually using those tools. Under Jackson-Vanik, he has no flexibility. Any proposal for limited new engagement must address this issue. As a first step, we should let the Soviets know what we want from them in the way of a down payment. We would make it understood that we would work for a change in US legislation, but they, in turn, would have to take steps to improve the atmosphere. If, as a result, the Soviets liberalize their policies, we will then be in a better position to go before the Congress and seek a change in the Jackson-Vanik and Stevenson amendments.

It was agreed that we need to study this question further to establish what we can reasonably expect to obtain from the Soviets in return for MFN and/or credits. On the other hand, we should avoid making the linkages between specific economic and political issues too explicit. That would surely backfire, as did Jackson-Vanik.

It was pointed out that generally our analysis of US-Soviet economic relations and, in particular, the question whether the US has economic leverage or influence over the Soviets was narrowly focused on the current situation. At the present time, we cannot exert significant influence upon Soviet behavior by economic means, and to be effective what leverage we do have would have to be used in a coordinated Western effort. However, our allies are more reluctant than we to use trade policy to achieve political ends. Yet, we may be missing an important point. If economic growth in the Soviet Union slows as projected, the Soviets will face difficult choices in the 1980’s regarding the allocation of resources. Does this have implications for US policy? Conceivably, our economic leverage may be much stronger than now, and we may have a unique opportunity to use it. Some concern was expressed, however, that it was difficult to see where an economic crisis, or more likely, a slowdown in the Soviet economy, would necessarily be to our advantage.

Similarly, with respect to energy, we should begin to think now whether it is in our long-term interest to help the Soviets develop and expand their energy production, in order to avoid the crisis suggested in the CIA’s recent paper on Soviet oil.4 In that regard, we must decide whether we are justified in basing our policies in this area on the CIA study. We need a critical assessment of the paper.

Regarding technology transfer, it was agreed that our primary concern was peaceful, non-strategic trade. Granting MFN and credits to the Soviets would not necessarily mean any loosening of controls on [Page 194]the export of strategic goods and technologies, particularly those with potential military application.

On other East-West matters, the group agreed that the Administration should not support the Humphrey bill which, like the Dole amendment proposed earlier this year, would permit the extension of CCC credits to non-market economies not otherwise eligible under the Trade Act. It was also reported that Romania was anxious to obtain an extended (e.g. three year) Jackson-Vanik waiver and had approached US officials in that regard. The group decided that it would be a tactical mistake for the Administration to undertake Congressional consultations on this issue at the present time. To obtain an extended waiver for a single country, we would have to use up valuable bargaining chips with the Congress which could undermine the prospects for a broader change in Title IV of the Trade Act.

Next Steps

It was agreed that we are not in a position now to undertake any major new initiatives in US-Soviet economic relations. Further work must be done in the following areas:

1. Studies should be initiated on the implications for US policy of (a) a slowdown in economic growth during the 1980s and (b) a projected decline in Soviet energy output and its shift from net exporter to net importer.

2. There should also be a study of what we would realistically expect to obtain from the Soviets in return for MFN and/or USG credits. This would include an examination of alternate packages, i.e. tradeoffs on both Soviet internal (e.g. emigration, human rights) and foreign policy issues (e.g. Soviet restraint in the Middle East, Africa).

3. We should undertake low-key, exploratory discussions with key Senators and Congressmen to evaluate the prospects for a change in the Jackson-Vanik and Stevenson amendments and to review the best legislative means to effect such a change.

Sec. Blumenthal will meet with Soviet Foreign Trade Minister Patolichev in November, and it was agreed that we should have answers to these questions before that meeting. The studies and our Congressional soundings will be reviewed by the PRC at a later date.

  1. Source: Carter Library, National Security Affairs, Staff Material, Office, Institutional File, Box 29, INT Documents: #5800s: 9/77. Secret. The meeting took place in the White House Situation Room.
  2. See footnotes 2 and 3, Document 22.
  3. See footnote 1, Document 40.
  4. See Document 40.