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

314. Minutes of a Policy Review Group Meeting¹

Washington, August 3, 1988, 4–5 p.m.

SUBJECT

• East German Claims Issues (C)

PARTICIPANTS

• State

  • Roz Ridgway

• Treasury

  • Robert Cornell

• DOD

  • David Wigg
  • Stanley J. Kwieciak

• Commerce

  • Alan Moore
  • Frank Vargo

• OMB

  • Wayne Arny

• CIA

  • George Kolt
  • [name not declassified]

• USTR

  • Michael Smith
  • David Weiss

• EPC

  • William Maroni

• White House

  • Colin Powell

• NSC

  • Stephen Danzansky
  • Nicholas Rostow
  • Nelson Ledsky
  • Alison Fortier
  • Eric Melby

Minutes

Colin Powell opened the meeting by asking Roz Ridgway to bring the PRG up to date on the U.S.-GDR claims negotiations. (C)

Roz Ridgway reviewed the history of the claims negotiations. Her remarks followed the points made in the memo at Tab A. (C)

Mike Smith said that USTR was willing to be as helpful as possible given its obligation to follow a consistent trade policy. However, it was Yeutter’s opinion that State’s proposal to combine claims and trade negotiations would be a violation of U.S. policy. He saw five problems with State’s proposal:

(a) it would in effect give limited MFN access to a limited section of the U.S. economy. This would set a precedent difficult to resist;

(b) linking payments of credits and trade concessions would be political dynamite;

(c) the GDR has plenty of money to pay the claims;

(d) only State favors the trade component of the proposed package;

(e) State and Commerce has so far failed to come up with anything substantive on the trade side (i.e. business facilitation or import commitments). (C)

Mike Smith continued that USTR would be guided by any political decision by the Economic Policy Council. While the U.S. does make tariff concessions to U.S. industry this is never in response to a request from a foreign government. (C)

Colin Powell asked Mike Smith whether the U.S. Ambassador to the GDR had not had authority to suggest a payments/trade package? (C)

Mike Smith responded that he did not know about the events of 1983/84. However, the GDR had not offered anything of substance on the trade side. USTR would have to defend the package before Congress and could not if all the GDR offered was business facilitation. (C)

Alan Moore said he did not entirely agree with Mike Smith on the trade policy argument but he did agree with the bottom line. The issue was highly political and highly volatile. He thought the Administration should first discuss the issue with the Hill before going back to the GDR. (C)

Moore said Commerce had reviewed informally product categories the GDR had submitted. There were probably some products the GDR could sell in the U.S. which, while competing with U.S. goods, would not cause an outcry from U.S. industry. However, the GDR would have to commit to increasing imports from the U.S.; a business facilitation agreement would not be sufficient compensation from allowing increased access for GDR goods into the U.S. (C)

Robert Cornell said Treasury shared the views of USTR and Commerce. He was skeptical of the package on trade policy grounds and cautioned that a politically acceptable deal might not make good trade policy sense. (C)

George Kolt said that the CIA felt the GDR’s desire for a claims agreement was driven by its economic needs. The GDR was concerned with industrial obsolescence and a desire of easing COCOM restrictions. It was seeking telecommunications technology, computers and earth-moving equipment. (C)

Kolt alluded to GDR training for Third World nationals, including terrorists. He said the GDR had done little to ease U.S. concerns on human rights. Finally, he felt that money was not an issue, that the GDR had sufficient funds to pay the claims. (C)

David Wigg remarked that from DOD’s perspective, differentiation would set an unfortunate precedent. (C)

Colin Powell then asked Roz Ridgway to respond to the views expressed around the table. She said she had talked with many people on the Hill including Rostenkowski, Gilman, Bereuter, Frenzel, Lantos and Packwood.² While aware of what the Administration is doing, Congress wants to see the whole package (U.S. claims, Jewish claims, trade package) before committing itself. Were a package to be put together, it would be called up on the Hill by Congressional interest groups which had already seen, and approved, it ad referendum. She added that the GDR knew that the U.S. could not guarantee the GDR dollar amounts of trade in the U.S.; the U.S. could just provide opportunities. Commenting on the CIA presentation, she said the GDR had never raised COCOM or computers with the U.S. (C)

Bill Maroni remarked that there was a near consensus in the TPRG that the issue was a non-starter. He suggested bringing it to the TPRG and then the EPC. (C)

Mike Smith said that USTR has asked State, following the TPRG discussion, to see if the trade package could be sweetened. However, he felt the whole concept needed to be vetted at appropriately high levels as the precedent would return to snap us. He reiterated that the U.S. could not give the GDR tariff concessions in return just for business facilitation.

Colin Powell asked, hypothetically, whether we would pursue trade discussions with the GDR if there were no claims at issue? (C)

Roz Ridgway responded that we probably would. We had lost trade valued at $1 billion. In her view, the U.S. could not say to the GDR that there could be no improvement in relations unless the claims were paid first. The U.S. did not have any leverage to take that position. (C)

Nelson Ledsky reviewed the history of our recognition of the GDR in 1974. Amb. Hartman³ had told the GDR there could be no improvement unless the claims were paid first. The U.S. had walked away from this position when we began talking about consular relations, etc. The GDR operated on the principle it could escape paying its share of the claims. Ledsky believed the U.S. could tell the GDR it had to first pay the claims and then a new relationship could be discussed. He thought the GDR would be receptive if the U.S. told the GDR that we would be willing to move forward once it had named a figure for the U.S. and Jewish claims. (C)

Mike Smith said the problem was one of linkage, explicit or implicit, between the payment of claims and the granting of trade concessions. Were the GDR to pay the claims, USTR would have no problem beginning trade negotiations on their own merit. (C)

Colin Powell summed up the meeting by stating there was a great reluctance on grounds of principle to have any linkage between claims and trade although the U.S. negotiator seemed to have been empowered to suggest such a linkage. Were the GDR to put numbers down in the draft claims agreements, then there would be opportunities to move forward. Even if linkage were acceptable to the Administration, it would be tough to sell on the Hill as the draft package was not balanced. He said State should tell the GDR that the U.S. would not agree to linking the claims and trade issues. (C)

Roz Ridgway said she had already told the GDR that the deal was off. However, she firmly believed the U.S. could not go back to the status quo ante. The U.S. had issues it needed to discuss with the GDR, such as narcotics, and it could not wait until the GDR paid the claims. (C)

Colin Powell responded that we should surgically separate the claims issue from any discussion of trade. Pay the claims and then trade could be discussed. (U)

Tab A

Paper Prepared in the Department of State⁴

Washington, undated

U.S.-GDR Claims Negotiations

U.S. Government claims on Communist countries from the immediate post-war period have been solved in all countries except East Germany and Albania. In each instance the level of the settlement reflected almost exactly the value of the properties held by the United States as leverage to obtain settlement.

Properties which might have been held until the GDR paid were restored by the United States to the Federal Republic in the period of non-recognition of the GDR. The United States refused to present its claims to East Germany before 1974 on the grounds that it did not recognize East Germany. Finally, in the negotiations concerning recognition of East Germany, the United States chose not to withhold recognition until the claims were paid, but rather accepted a commitment to negotiate the claims in the future. With that, the last of the leverage was gone.

Nonetheless, the GDR has always accepted the principle that the claims should be negotiated. After recognition, we embarked upon a claims adjudication process here in the United States, starting in 1978, and finally presented the claims in 1981. There were at the outset some fourteen countries with claims against the GDR. To our knowledge, they have settled those with Finland and Sweden. They continue to negotiate with all others.

Concurrently, the Conference on Jewish Material Claims Against Germany has been involved with negotiations with the GDR for decades. Although this is a private claim, not the responsibility of the United States, we have supported the CJMC’s efforts throughout the years.

Indeed, our position with the GDR has been that claims, both those of the U.S. Government and those of the Jewish community, must be settled before there can be an improved relationship. This continues to be the position of the U.S. Government.

In 1982, the Jewish group approached the Administration with a request to support a proposal from them for a trade package for the GDR, which would be approved in the context of a claims settlement. It was pointed out that a similar approach had been employed with the FRG, i.e., the Conference on Jewish Material Claims Against Germany had supported special trade opportunities for the FRG in the context of FRG agreement on payments to Israel. Already active on the Hill, the CJMC had inspired considerable interest among a range of Congressmen, both Democrat and Republican. The preliminary U.S. response was that it would take the CJMC proposal under examination.

In 1983, the United States sent a new Ambassador to East Berlin. The Ambassador’s instructions were to reiterate the principled U.S. position that both the official and U.S. Jewish claims were to be paid, and if they were, the way would be open to improved relations. GDR representatives asked what would be the content of those improved relations inasmuch as U.S. law, particularly the Trade Act of 1974 (Jackson-Vanik), prohibited MFN for the GDR except in terms the GDR could not meet. In accordance with the instructions, the Ambassador informed the GDR they would have to wait to see what happened after the claims were paid.

Returning to Washington in June 1983, the Ambassador reviewed with Administration officials the range of U.S. interests in the GDR, of which there were few except claims and human rights, and met again with the Jewish group and Congressional staff. It was the Ambassador’s view that there was a core weakness in the U.S. position; that the U.S. was actually saying to the GDR, you pay us and we will tell you what you have bought. This was rather like a used car dealer telling a customer, “give me five thousand dollars and then I will tell you which car you have purchased.” This is a totally acceptable position. However, one simply wasn’t likely to sell many cars. It was the Ambassador’s view that the position also was not likely to obtain a claims settlement.

Working within an interagency committee of State, Treasury, USTR, Commerce, and the NSC, and in association with the Jewish groups and the Hill community, the following proposal was devised:

— Issues of concern to both governments would be put on the table simultaneously. For the United States, there were the two sets of claims, human rights, and the preservation of the spirit of Jackson-Vanik. For the GDR it was expected these would be a trade agreement and MFN.

— For the United States, there were certain things that could not be done. MFN would not be politically feasibly as long as the Berlin Wall stood. However, with Congressional approval and a dramatically improved human rights picture, it might be possible to obtain some partial favorable treatment for GDR trade.

— Even if it were possible to develop a trade package, the claims agreements could not be linked in a way that made payments of claims dependent upon trade increases. All that could be offered was an opportunity.

— At the same time, as there is no basis of trust between the United States and the GDR, the United States should be able, within the terms of the agreements, to terminate trade opportunities if claims payments were interrupted. Conversely, the GDR should be in a position to terminate claims payments if the trade opportunity was pulled back.

— Taking into account present value, the claims settlement figure to which the USG might agree would depend upon the length of the payment period, and whether the payout was front-loaded significantly.

— Ideally, claims would be paid in one year, and the trade opportunity would be for one year, although the trade facilitation agreement could be for a longer period.

— Practically, it should be expected that the claims payments would extend over a 5–10 year period, that the trade opportunity would have to be for the same period of time, but,

— To be consistent with the spirit of Jackson-Vanik, the trade tariff list would have to be reviewed annually and recertified in light of the GDR’s human rights record and claims payments record, recognizing that denial would result in stoppage of claims payments.

— It was preferable for the USG and the CJMC to work together in time and objective, so that the USG could benefit from CJMC political support, and the CJMC would not appear to be ignoring the interests of U.S. citizen claimants in favor of the claims of the world Jewish community.

The Ambassador was instructed to review this package with appropriate GDR officials and report back. This was done. The GDR was interested.

In March 1984, after consultations among State, Commerce, and USTR, and with the Hill and the CJMC, State

— advised the CJMC it was prepared to work together with it in the course of negotiations, in the development of respective claims agreements, and in the development of additional Congressional support for the approach, specifically, support for the list of tariff concessions.

— instructed the Ambassador to place the proposal officially on the table, as an ad referendum proposition.

The claims negotiations, steps forward in the human rights picture, and Congressional consultations have all proceeded. In the spring of 1988, the TPRG, chaired by USTR, rejected a State/Commerce request that USTR proceed with the ad referendum development of the trade negotiations.

Interested members of Congress and the leadership of the Jewish claims group have been advised of the TPRG decision not to proceed with trade talks.

1. Source: Reagan Library, Office of the Assistant to the President for National Security Affairs, 88900640. Confidential. The meeting took place in the Situation Room. No drafting information appears on the minutes.
2. Representatives Daniel D. Rostenkowski (D–Illinois), Benjamin A. Gilman (R–New York), Douglas K. Bereuter (R–Nebraska), William E. Frenzel (R–Minnesota), Thomas P. Lantos (D–California), and Robert W. Packwood (R–Oregon).
3. Reference is to Arthur Hartman, Assistant Secretary of State for European Affairs from January 1974 until June 1977.
4. Confidential.