Office of the Historian

304. Paper Prepared in the National Security Council Staff1

Washington, undated

PROPOSED TRADE AGREEMENT WITH GERMAN DEMOCRATIC REPUBLIC

Issue

Whether to begin negotiations with the GDR on a trade package that would also provide for payment of wartime claims for property seizures and atrocities.

Discussion

State proposes that the USG negotiate a package with four components:

•
Payment of Jewish claims. Valuation of war crimes is imprecise, but the Conference on Jewish Material Claims on Germany sets the claim at $100 million.
•
Payment for property taken from U.S. citizens. Total claims in the early 1950’s were set at $78 million; interest since then has increased the claim to about $300 million.
•
Trade access to the U.S. market. East German goods now pay higher tariff rates assessed on goods from most Communist countries. Under the proposal, we would obtain Congressional approval to apply temporarily the lower most-favored nation (MFN) rates to a select range of non-sensitive products.
•
Business facilitation in the East German market. The GDR would agree to provide improved access for U.S. firms to potential buyers and to market information.

The U.S. has regarded payment of claims as a precondition to improved bilateral relations. While the GDR has sufficient foreign exchange to pay, it has argued that the West German government should pay all claims. State sees this package approach as the best means of settling the long-standing issue before most claimants die. Jewish groups support.

At a February 29 meeting of the Trade Policy Review Group,2 all other agencies opposed or expressed doubts. Some were concerned with the possible “arms for hostages” appearance of the package. Others were concerned that the legislation would complicate handling of the trade bill and Canada FTA legislation. Most concluded that the risks of moving now were substantially greater than the costs of waiting one more year.

Points to Make

•
Could be controversial in the Congress, even though Jewish groups support.
•
Would need to demonstrate we’re getting something economically from the deal—hard to do.
•
Caution against going ahead. Just agreeing to negotiate could be costly.
•
Howard Baker also has reservations.
  1. Source: Reagan Library, Colin Powell Files, Chron—Official 1988 I (January–June) (6). Confidential.↩
  2. The memorandum of conversation of this meeting was not found.↩