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

308. Memorandum From Stephen Danzansky of the National Security Council Staff to the President’s Deputy Assistant for National Security Affairs (Negroponte)¹

Washington, May 3, 1988

SUBJECT

• PRG Meeting on East German Claims/Trade Package, Wednesday, May 4, 1988, 10:30 a.m., in the Situation Room.

The PRG you will chair on Wednesday, May 4² will discuss the advisability of continuing to develop a package for improved trade relations with the GDR that will induce them to pay claims owed to U.S. citizens for property seizure and to U.S. Jewish claimants for war crimes. There has been no interagency consensus on whether to proceed, but we understand that the State Department is pursuing the issue. The PRG must decide what U.S. policy will be on this matter and whether to continue in the direction that State is heading.

Background

There are two groups of claims involved: 1) Private U.S. claims for properties seized through forced sales by the GDR, and 2) Jewish claims for wartime atrocities. The first set of claims (about 2,000) was adjudicated in U.S. courts in 1977–81 and valued at $78 million with $300 accumulated interest. The second set of claims is valued by the Conference on Jewish Material Claims on Germany (representing 50 Jewish organizations) at $100 million.

The U.S. Government is obligated (under the Foreign Claims Settlement legislation)³ to do all it can to get East Germany to pay the U.S. property claims, but it has no leverage to do so. The USG does not represent the Jewish claims efforts but strongly backs the settlement of these claims. Recently Rabbi Miller, President of the Conference, met with Senator Baker to explain the situation. The State Department, on the other hand, has completed the ninth round of negotiations with the GDR on the property claims, and reports agreement on an ad referendum text that deals with the problems and status of these claims. The text leaves blank the amount of money owed and any payment schedule.

State Department Proposal

The GDR continues to ask for assurances on trade promotion measures. While State has emphasized that Most Favored Nation treatment is impossible, State believes the U.S. could give MFN tariff treatment on selected items that would not compete with U.S suppliers in the U.S. market. This strategy would not guarantee GDR exports to the U.S., but would allow it to compete more effectively with foreign suppliers. In addition to payment of the claims, Commerce would ask the GDR to commit to business facilitation for U.S. firms, for access to potential GDR buyers and to market information. The U.S. has not agreed to trade talks with the GDR but has asked it for a list of products for which it would want MFN treatment.

Interagency Deliberations

On February 29, the Trade Policy Review Group considered the trade package idea, and, according to State, all other agencies opposed or expressed doubts. Concerns included the “arms for hostages” appearance of the deal; potential complications with the Omnibus Trade Bill and Canada FTA; and lack of control over “business facilitation” efforts by the GDR. Two study papers were commissioned to examine the broader political context of a trade deal and more specific trade actions that might be involved. Neither study has been completed.

On March 18 at an International Economic Policy Breakfast meeting, Secretary Shultz raise the issue, but General Powell and Secretary Baker expressed concern over both political appearances and raised the “moral” question of trading GDR obligations for concessional economic treatment.⁴ Secretary Baker suggested killing the whole idea.

Despite what appeared to be a strong majority view at the breakfast, State seems to be proceeding apace with a “deal.” This is curious given the strong feelings expressed by Powell and Baker, the apparent acquiescence of Secretary Shultz and the lack of further progress at the TPRG level. Cable traffic indicates that the discussions with the GDR have continued despite these negative signals.

Political Considerations

The State Department says the U.S. has no leverage to force the GDR to pay claims, and, given the age of the claimants, if the GDR does not pay soon, the money will go to the claimants’ estates instead of to the claimants. It is alleged the Jewish Conference has urged that the U.S. agree to a trade package, and the Conference does have the ear of some Congressional Members. West Germany, according to State, has said that any improvement in U.S.-GDR trade relations would be beneficial, and State has received inquiries from Israel. On the other hand, press reports have highlighted recent East German actions to detain emigration activists and censor church publications (copy attached).⁵ Any USG pursuit of trade liberalization via limited MFN treatment could therefore be criticized on grounds of no improvements in GDR human rights violations.

Finally, GDR Politburo Secretary, Hermann Axen, will be in Washington, D.C. this week for meetings at State, and it would useful to have an Administration consensus on how to proceed with this issue.

RECOMMENDATION

That you use the talking points at Tab I.⁶

1. Source: Reagan Library, Stephen Danzansky Files, Subject File, GDR: 09/06/87–05/03/88. Confidential. Sent for action. Drafted by Seiber. Concurred in by Ledsky. An agenda at Tab II was not attached.
2. The minutes of this meeting were not found.
3. Telegram 278 from East Berlin, January 15, provided the draft text of the agreement. (Department of State, Central Foreign Policy File, D880039–0587)
4. See Document 304.
5. Tab III was not attached.
6. Tab I was not attached. The recommendation was neither approved nor disapproved.