Foreign Relations of the United States, 1981–1988, Volume X, Eastern Europe

107. Action Memorandum From the Acting Assistant Secretary of State for European Affairs (Palmer) to Secretary of State Shultz¹

Washington, March 23, 1983

SUBJECT

• U.S.-Romanian Relations in the Post-MFN Environment

ISSUE FOR DECISION

How best to preserve a constructive, mutually beneficial relationship with Romania now that we have announced that Romania’s Most-Favored-Nation (MFN) tariff status will end on June 30, 1983.

ESSENTIAL FACTORS

The termination of MFN and associated benefits for Romania undoubtedly will be a serious blow to our bilateral relationship. Moreover, the education repayment decree and continuing human rights violations make it difficult for us to maintain a genuinely close relationship with the Romanians. Nevertheless, most of our fundamental interests vis-a-vis Romania are unchanged, and we should still seek to preserve and advance them to the extent possible.

It remains in our interest for Romania to stay as independent and free from Soviet control as possible, to keep its military cooperation with the Warsaw Pact at minimal levels, and to avoid bankruptcy. We also want to preserve some relationship with the GOR so that over time we can work toward improvement in their human rights practices, including emigration. Finally, Ceausescu will not last forever and we should look ahead to the post-Ceausescu era. The initial indications are that the GOR also wants to limit the damage to our relationship that will result from the loss of MFN and access to USG credit and guarantee programs. And we cannot rule out the possibility that the Romanians ultimately will see that they have more to gain than to lose by stopping implementation of the decree.

The main challenge facing us will be to conduct our relations with Romania in a constructive way at a time when the loss of MFN and access to USG credits and credit guarantees severely limits what we can do in the areas of greatest interest and importance to the Romanians—trade, finance, and the economy. However, there are several actions we should take to keep the bilateral relationship healthy.

ANALYSIS OF OPTIONS

The following is an outline of the major actions we should take to preserve our relationship with Romania over the next few months and to encourage the GOR to drop implementation of the education repayment decree.

A. EXIM Credit for Cernavoda Project

Commerce and USTR feel strongly that it is in the U.S. interest to go ahead with the provision by General Electric (GE) of steam turbines for the Cernavoda nuclear power project. This involves some 2,000 American jobs and almost $200 million in sales—all would be lost to the Canadians, Italians, or other Europeans if we do not move in the coming months.

As approved by the President, EXIM agreed in 1981 to provide $120 million in credit to the Romanians to permit them to purchase the GE turbines. As recently as March 1, Deputy Foreign Minister Dolgu made a plea to Under Secretary Eagleburger and Commerce Under Secretary Olmer for continued EXIM involvement in the project,² in which the Canadians and Italians are also participating. In our view, termination of Romania’s MFN does not require the cancellation of prior credits such as the one in question. The Canadians and Italians wish to make a technical survey of the Cernavoda site soon and want the US to take part. EXIM is no longer enthusiastic about the project and does not want to participate in the tripartite technical survey. It has been concerned over Romania’s precarious financial situation, but is now also nervous about possible Congressional criticism of the Bank if it proceeds with the loan after the termination of MFN. From the political standpoint, it is important for us to go ahead with the EXIM credit—it is the only significant economic carrot remaining which we can use with the Romanians. In any case, we should definitely participate in the technical survey so as to keep this option open and credible, assuming that GE remains interested in the project. We can reserve a final decision on participation. We understand that Mac Baldrige and Bill Brock agree. To break the logjam, we suggest you send a letter to Bill Draper (Tab l),³ with copies to Commerce and USTR.

B. Visits

President Ceausescu has asked to pay an official visit to Washington this year. Foreign Minister Andrei has also expressed interest in coming to Washington in April. A Ceausescu visit does not appear desirable this year unless preceded by repeal of the education repayment decree or the cessation of its implementation. On the other hand, an Andrei visit in April could be useful, if only to maintain the appearance of normal relations during a period when not much other high-visibility bilateral activity may be possible. Indeed we may need to rely on other such visits in both directions over the coming months for the same reason.

C. Landsat

The purchase of Landsat equipment continues to be of great interest to Romania. Eugeniu Mandescu, Secretary of the Romanian Commission for Space Activities (RCSA), visited Washington on February 22 to discuss the status of this question with NOAA, State, and Commerce representatives. Mandescu conveyed continued Romanian interest in Landsat, which the GOR wishes to use for agricultural and mining research purposes. He was told that DOD still is reviewing the export license applications for the equipment involved, but that State and Commerce intended to push for approval of the program.

We understand that Commerce is considering pushing this issue to the EARB (Economic Advisory Review Board) to try to pry a decision on LANDSAT from DOD. If Commerce does not move, we should take action to obtain resolution of this issue—either by calling a meeting of the EARB ourselves, or by taking the issue to the NSC/President. This has been dragging on too long, and our scientific reputation and relations with Romania call for resolution of the issue.

D. Trade Areas

Although the loss of MFN and associated benefits will seriously hamper our ability to be helpful to Romania in the economic, financial, and trade fields, we will continue to support Romania’s debt rescheduling efforts and requests for IMF and IBRD assistance to the extent possible. Moreover, we should endeavor to maintain those portions of our bilateral trade agreement not directly affected by the loss of MFN. The Commerce Department and other USG agencies should continue to assist the GOR in trade promotion, marketing, and in other appropriate ways. The object would be to maintain our economic relationship with Romania, although necessarily at a lower level than before, and continue to keep the door open to rapid expansion should it be possible to restore MFN status. You should know that Milt Rosenthal, Chairman of the Board of Engelhard Corporation, plans to visit Bucharest shortly in his capacity as US Co-Chairman of the Romanian-US Economic Council to discuss with Ceausescu the U.S. business community’s evaluation of the impact the loss of MFN would have on bilateral trade.

E. Education and Cultural Activities

During a period when our relations with Romania may have to be characterized more by form than by substance, it is important that we maintain and, if possible, expand our activities with Romania in the areas of education and culture. In July 1983, USIA will present to the GOR its draft program for 1984 for bilateral cooperation and exchanges in education, culture, science, technology, and other fields. That will provide an opportunity to demonstrate continued USG interest in a bilateral cooperation and exchanges program. USIA could also be requested to seek opportunities for additional high-visibility activities with and in Romania which would enhance bilateral cultural understanding and cooperation.

F. Human Rights and Emigration

We should seek to maintain our dialogue on these subjects, inter alia, because we will continue to face innumerable specific problem cases. Congress will want us to use whatever influence we can on these cases. Also we should not rule out eventual discussions on how to deal with the emigration issue. Should Romania stop applying the education tax and make other specific emigration process improvements, we would give serious consideration to restoring MFN, keeping open the option of seeking multi-year MFN for Romania at a later date should conditions warrant it. We do not believe it is appropriate, however, to convene the human rights round table discussion, which had been planned tentatively for this spring, until there has been some human rights progress in Romania.

RECOMMENDATION

That you approve the foregoing general approach to preserving and, where possible, enhancing our bilateral relations with Romania during the post-MFN period.⁴

That you agree to meet briefly with Foreign Minister Andrei at a mutually convenient time in April.⁵

That you sign the attached letter to William Draper of EXIM, urging EXIM participation in the upcoming tripartite site survey in Romania.⁶

1. Source: Reagan Library, George P. Shultz Papers, Official Memoranda (03/24/1983) (2). Confidential. Sent through Eagleburger. Drafted on March 1 by Jonathan Rickert (EUR/EEY); cleared by Palmer, Davis, Bruce Hirschorn (EB/OT/TA), Steven Sestanovich (S/P), Daniel McGovern (L), and Elliott Abrams (HA). Rickert initialed for all the clearing officials except for Palmer. At the top of the memorandum, an unknown hand wrote, “See Secretary’s request pg. 5.” A stamped notation indicates that it was received on March 23 at 3 p.m.
2. Telegram 63028 to Bucharest, March 8, reported the meeting between Eagleburger, Olmer, and Dolgu. (Department of State, Central Foreign Policy File, D830128–0518)
3. Not found attached. A copy of the letter, signed by Shultz and dated March 28, is in the Reagan Library, George P. Shultz Files, Official Memoranda (03/28/1983).
4. Shultz initialed the “Approve” option, and the date of “Mar 28 1983” was stamped next to the initials. Adjacent to this recommendation, Shultz wrote in the right-hand margin, “I’d like more info on Landsat & relation of this to discussions with the PRC.”
5. Shultz initialed the “Approve” option, and the date of “Mar 28 1983” was stamped next to the initials.
6. Shultz initialed the “Approve” option, and the date of “Mar 28 1983” was stamped next to the initials.