It was 1979 and the Carter administration was coming to a close when Larry Brady, the Commerce Department’s deputy director for export administration, testified before the Ichord Subcommittee of the House Armed Services panel. Run by conservative Democrat Richard Ichord, the subcommittee was trying to determine whether the Kama River Truck plant, which was built with American technology, was producing trucks and other items for the Soviet military. The National Security and Defense Intelligence Agencies had received hard intelligence that Kama was producing military hardware, a fact that could have grave consequences for Jimmy Carter’s accommodationist policies, and that prompted one administration official to deny the truth to Ichord.
“Do you agree, Mr. Brady?” Ichord asked. “No,” came Brady’s reverberating reply. It turned out that a representative from IBM installing computer software at the plant had observed Soviet personnel in military uniforms pacing Kama River’s floor, clipboards in hand, jotting notes and barking orders in Russian. Kama River was not only producing trucks that took the Red Army into Afghanistan, but also 12-cylinder tank engines.
Thus did U.S.-Soviet trade in general and technology security in particular become a campaign issue for Governor Ronald Reagan, who cited Brady in speeches and promised him a job in his administration. Before Brady, no one in government had really focused on the matter, a state of affairs that would end almost immediately when Reagan took office. At the end of his first term, the high-tech and economic security appointees had so thoroughly frustrated the Soviets and their shills in the protrade lobby that they mounted an all out effort to rid the administration of Reaganesque hard-liners. They succeeded, and by the end of Reagan’s second term, when the “Evil Empire” rhetoric and his closest advisors were canned and became little more than a bad memory for Nancy Reagan and Michael Deaver, the plans had been laid for a renewed program of economic and technological aid for the Soviet Union that would exceed anything anyone had thought possible in 1980.
George Bush and his advisors are going at it hammer and tongs with the NATO allies and Eastern Europeans to bring those plans to fruition. For instance, the administration initiated a billion-dollar program of financial assistance to Hungary and Poland, supposedly to assist the development of free market economic systems in each country. Included in the bag of goodies are U.S. taxpayer subsidies to encourage American business investment. Democratic lawmakers are proposing another $500 million. Another facet of the plan to “democratize” the Evil Empire is relaxing and even eliminating export controls on technology even our Defense Department hasn’t incorporated into the most advanced American weapons systems.
While these hastily-made policies are aimed primarily at Eastern Europe for now, they will soon be applied to the Soviet Union, if the administration’s rhetoric and recent congressional hearings are any indication. The peril is that U.S. policymakers are giving up too much too soon in expectation of a sea change in the adversarial relationship of the East and West that may never materialize.
As he has often said, Mr. Bush wants to revitalize the Soviet economy and thereby boost the fortunes of perestroika and glasnost. In announcing last year’s Maltese confabulation with Mikhail Gorbachev, Bush said, “What I want to make clear to Mr. Gorbachev, is that we do want to see [perestroika] succeed.” The thought is that if perestroika prospers, we can wean Eastern Europe away from Moscow and the Warsaw Pact will beat its swords into plowshares, after which the Soviet Union will become some sort of democracy and desist as a military threat to the United States. The scenario is a firm article of faith in the Bush administration.
The U.S. business community, sniffing profits in the provinces of Muscovy, is foursquare behind Mr. Bush’s plan, which includes forging a new trade agreement with Moscow. Of some twenty businessmen who testified before the House Ways and Means Committee on January 30 and 31, only one opposed selling the store to the Soviet bloc. Pepsico’s Donald Kendall, Dresser Industries’ John Murphy, Armco’s Kempton Jenkins, and even a representative from an outfit known as the Emergency Committee for American Trade, all testified in favor of dramatically curtailing U.S. export controls such as the Jackson-Vanik provisions that block trade because of Soviet emigration policies. They believe the U.S. should revise the Export Administration Act, which imposes national security controls on high technology exports, and that the taxpayer-subsidized Export-Import Bank and Overseas Private Investment Corporation should subsidize the American corporate expedition behind the tattered Iron Curtain. The United States should also grant the Soviet Union and its Warsaw Pact allies Most Favored Nation status, which would “normalize” trade relations by dropping U.S. export barriers to products from the East. Finally, the Soviet Union would be recruited for membership in the General Agreement on Tariffs and Trade.
An ambitious agenda. Corporate America’s main point is that trade restrictions of any kind cost American companies a lot of business vis-d-vis European and Japanese competitors, with no corresponding benefit to American national security or foreign policy goals. Dresser Industries’ Washington lobbyist Ardon Judd told me that Jackson-Vanik controls on oil and gas equipment cut the U.S. share of sales in that market from 25 percent of the world market to less than 2 percent. “We lost billions of dollars and thousands of jobs in what used to be an industry in which we had a real position of primacy,” Judd says. But Judd and his colleagues believe such controls hurt U.S. national security as well, because the U.S., having lost its leading market share of such technology, “has no control over the sale of gas and oil equipment.” Besides, now that Eastern Europe has been democratized, they ask, what’s the point in blocking trade? A spokesman for the American Committee on U.S.-Soviet Relations, which wants to drop all export controls that prevent high technology from flowing east, says “there’s no capability” in Czechoslovakia, Poland, or Hungary to make war on the West. But even if there is such a capability, some businessmen aren’t worried about it.
The Advisory Committee for Trade Policy and Negotiations boldly suggested in a 51-page report to the President: “The convergence of economic and political change in Europe is placing new strain on the ability of the U.S. to unilaterally control the flow of sensitive technologies that could enhance Soviet military capabilities.” Confirming this view, a highly-placed government official frankly admits that “certain equipment may end up in the wrong hands,” and that “that’s a risk we have to take” to push the East toward democratization.
Whatever the impact on corporate America’s bottom line, Reagan-era export controls dramatically fortified U.S. national security. Thanks to Reagan’s Senior-Inter Agency Croup for International Economic Policy (SIG-IEP), which included officials from the national security community and State and Commerce departments, the U.S. lead in important, militarily useful technology was fortuitously enlarged. Under SIG-IEP’s guidance the administration ran up a string of policy successes. It impeded the flow of hightech goods to Moscow, pushed our allies into eliminating government-backed credits to Moscow, persuaded the Organization for Economic Cooperation and Development to eliminate similar subsidies, and convinced the International Energy Agency to cap Soviet natural gas imports at 1982 levels. SIG-IEP was so effective in controlling policy that in June 1983 NATO issued a communique emphasizing the new trade-security consciousness of the allies, a point reiterated at the 1983 Williamsburg Economic Summit. President Reagan also put some new teeth in the Coordinating Committee for Multilateral Export Control (COCOM), which regulates trade with the communist world.
According to the files of one hightech firm, the Reagan administration’s trade policies bore delicious fruit:
* “A major slowdown in the Soviets’ ability to incorporate Western technology into their military systems;
* “An extension of the gap in semiconductors, which had narrowed to a dangerous 1-2 years in 1981 to 7-9 years in 1988;
* “A real decline in Soviet computer output and in quality, widening the Western lead over the Soviets to 15 years or more;
* “An inability of the Soviets to devise technological means to answer the Strategic Defense Initiative;
* “An explicit recognition by distinguished Soviet scientists that the Soviets had little or no possibility of producing supercomputers like the Cray;
* “A near blockade of turnkey factories in critical areas such as microcomputers, electronics, and advanced materials;
* “A significant rise in Soviet failures to achieve readiness and increasing evidence of the failure to maintain advanced systems in the field;
* “Clear indications of the decline in Soviet military prestige.”
But it wasn’t long before the SIGlEP was tossed overboard in a dramatic coup (see sidebar) that led to the eventual enthronement of William Verity, a veteran rope salesman, as chief of the Commerce Department. In trips to the Soviet Union and in a secret meeting with Mikhail Gorbachev, Verity laid the groundwork for the trade policies Mr. Bush has proposed over the first year of his administration, including dropping high-tech export controls.
A look at what the Soviet Union has accomplished by stealing technology reveals how important such controls are. The Pentagon reports that “virtually every Soviet long- and short-term research project for military systems—well over four thousand in the late 1970s and well over five thousand in the early 1980s—is benefiting from the documents and hardware of at least a dozen Western countries,” most notably the United States. In early February, Pentagon investigators began snooping around to find out whether a Swiss company sold high-tech machine tools and the plans to manufacture them to the Soviet Union. Before that, they learned that Olivetti sold the Soviet Union $25 million worth of computer-driven machines to help make Yak-41 vertical-takeofF supersonic fighters. The Olivetti case inadvertently disclosed to the public, Kenneth Timmerman reported in the Wall Street Journal, that since 1983 our European allies and Japan have shipped 6,000 embargoed machine tools to the Soviet Union that were directly diverted to the Soviet military. In July, Japanese authorities discovered that a company called Prometron illegally diverted to East Germany several 4,500-pound machines known as “mask aligners,” which are used to produce semiconductors. Yet another major coup for the Soviet Union was purchasing a milling machine from Toshiba to make supersilent submarine propellers. That sale alone may cost U.S. taxpayers some $30 billion in new research to develop technology superior to what Toshiba handed over.
The Soviets have also acquired technology for the F-18 lookdown, shoot- down radar; air-to-air missiles; armor piercing tank rounds; cluster bombs; space-based photoreconnaissance systems; infrared image processors; cruise missiles; anti-ballistic missile radar design; over-the-horizon radar; laser weapons; and a wide range of powerful computers and peripheral technology.
Democratization of the East isn’t the point. U.S. officials need to know how the Warsaw Pact and Soviet Union will use increased aid and trade. Unhappily, this fact hasn’t put the brakes on the Utopian effort to drop as many high-tech export controls as possible.
A small sampling of the Commerce Department’s recent decisions taken over the Pentagon’s objections illustrate the problem. The department approved Honeywell Corporation’s license to sell its TDC 3000 computer to the Soviet Union for automated industrial control of fertilizer production. The Department of Energy uses a similar machine to run its atom bomb plants. The Commerce Department has also dropped controls on computers ten times more powerful than anything our Defense Department even plans to use. Wire bonders, the machines that can “sew” wire leads onto semiconductors the size of a fingernail in a second, have also been decontrolled. High-grade polysilicon used to make computer chips that process information at ultrasonic speeds are also headed east.
Top experts inside and outside government say the Soviet bloc not only doesn’t have the ability to produce this technology indigenously, but also doesn’t have the ability to use it in their civilian economy. How will the Soviet bloc’s “private sector,” which needs to produce potatoes and meat and shoes and socks, use or even buy wire bonders, polysilicon, and computers? Protrade government bureaucrats and businessmen can’t say. But even if they could, Soviet and East bloc consumers don’t earn enough money to buy high technology or the goods high-tech machines can make. As the New York Times reported when McDonald’s opened in Moscow, a Big Mac, cheeseburger, apple pie, and two milkshakes costs four days’ salary. As former Assistant Defense Secretary Frank Gaffney notes, the Soviet bloc’s “needs are for equipment that lends itself to efficient production of consumer goods and food—not state-of-the-art warplanes. The manufacture of competitive export goods can be easily satisfied within the existing” export control standards. In other words, increasing high-tech exports will not free the Warsaw Pact’s citizens, it will strengthen the Warsaw Pact’s armies.
Nevertheless, Control Data may receive permission for the sale of six Cyber 962 computers, five times more powerful than any machine in the Soviet inventory, supposedly to improve the safety of civilian nuclear power plants. Like Honeywell’s TDC 3000, this technology could easily be transferred to the military. Innovation International received approval for a joint venture to assemble one million personal computers capable of processing one million instructions per second. At $20,000 a whop, this is hardly the kind of technology the average Soviet schoolboy will use to play flight simulator.
Joint ventures with the Soviet government, wherein Moscow owns. 51 percent and the company owns 49 percent, have become the new way to do business there. How these statemanaged enterprises forward the cause of the free market is anyone’s guess, but American and European companies have leaped at the chance to do business with Moscow’s corporate socialists.
According to the Financial Times of London, more than one thousand joint ventures have been registered in the Soviet Union. About 330 of the businesses are West European, 247 are East European, 86 are American, and 18 are Japanese. All totaled, the Warsaw Pact has signed 3,330 joint-venture agreements, most of them with the West.
Apologists for corporate America’s journey east say most of the joint ventures entail the “service” sector, referring to Pushkin Square’s newly opened McDonald’s or Pepsico’s unfulfilled dream of opening a Pizza Hut chain. But not all the joint ventures are so innocent. Combustion Engineering, Stamford, Connecticut’s oil production and engineering firm, will invest $2 billion with the Finnish Neste Corporation to operate a petrochemical plant in Siberia. According to the International Trade Commission, Combustion Engineering also signed a joint venture in 1987 to provide “design engineering, production, and installation of automated controls systems for the oil, petrochemical, and chemical industries.” Joint venture advocates say oil and gas technology isn’t strategically useful. Yet Roger Robinson, the only businessman who spoke out against increased trade and subsidies during January’s congressional hearings, notes that “80-90 percent of Soviet annual hard currency earnings stem from just four export items—oil, gas, arms, and gold,” with oil comprising nearly 70 percent of the total. Yet Chevron and Armand Hammer’s Occidental Petroleum are drilling away on behalf of the Soviet oil minister.
Other American companies that will produce strategic commodities for the Soviet bloc include Interconcepts Inc. (PC’s and software), Honeywell (automated systems). Dresser Industries (oil production equipment), Siber Inc. (computer software), Berusa International (turnkey automated systems using microprocessor technology), Sheldon Trading Company (natural gas production), and Slays Commerce Corporation (a joint venture to launch commercial and scientific satellites). U.S. West wants to lay a 500-million-dollar, 12,000-mile fiber optic cable linking the U.S.S.R.’s 11 time zones. Sure enough, fiber-optics will enable a Siberian babushka to reach out and touch her granddaughter in Moscow, but it will also enhance the security of the Red Army’s military communications, making them less susceptible to Western intercepts. Meanwhile, Gulfstream Aerospace will join the Sukhoi airplane concern, best known for building the Su-25 jet fighter used to slaughter Afghans, in building a supersonic “business” jet. Reynolds Metal Company of Richmond, Virginia, has joined forces with two Italian companies to build an aluminum foil factory in Siberia, while Gillette wants to build a $50 million factory to make 800 million razor blades annually. American Telephone and Telegraph is asking the government for permission to enter a joint venture agreement with the Soviet Intersputnik Company to use its satellites for voice and data services.
Clearly, American and European businessmen are prepared to rebuild the Warsaw Pact’s industrial infrastructure from the ground up. The potential for abuse on some of these projects is incalculable, if only because American businessmen don’t have the means to enforce promises that the technology, once installed, won’t be diverted to the military.
When Henry Ford II went to kick the tires on the Kama River truck plant, the Soviets assured him the trucks would be used for peaceful purposes. They lied. They not only built trucks for the Red Army, but also broke down and stole the machine tool technology used on the assembly line. Neither Ford nor the United States government could do anything about it. The sad thing is that now there’s no effort to sequester technology from the Soviet military, as Gulfstream’s venture with the Sukhoi jet fighter concern shows.
The latest corporate endeavor in the Soviet Union has a lot in common with those of years past. “New thinking” has emerged in the Soviet leadership. A “closet liberal” will reform communism. Revolutionary changes are sweeping the Warsaw Pact. Democratization is at hand. Even if these things are true. Western government and business leaders have closed their eyes to the fact that our adversaries in Red Square and in the capitals of Eastern Europe still have their guns and bombs trained on the United States. Soviet defense spending has increased 3 percent annually during the Gorbachev reign. Warsaw Pact spy agencies. Senate and top government officials confirm, continue spying on us. And the KGB has intensified its efforts to steal technology as the Red Army modernizes its nuclear rocket force. Gorbachev warns that he remains a “convinced communist”: “When accusations of ‘exporting revolution’ are replaced with calls for ‘exporting capitalism,’ we have at hand a dangerous manifestation of old thinking.” Indeed we do. While U.S. officials were dreaming of a Soviet Empire shrinking behind the border of the Russian Republic, Soviet-backed forces in Angola launched a blitzkrieg against the American-backed Jonas Savimbi. When George Bush was preparing for his floating summit in December, the Soviet-backed FMLN continued its campaign of terror in El Salvador. As East Europeans danced on communism’s grave, some Angolans and Salvadorans were buried in it.
The goal of American policy should be the burial of the Soviet Union and the Warsaw Pact. More than anything, Mikhail Gorbachev and his allies need American aid and trade to survive. If we deny it, they are doomed. That’s why, in a time of decreasing defense budgets, transferring technology to the Soviet bloc in exchange for promises of peace and democracy is a deranged policy. The democratization of the Soviet bloc may or may not be in the interest of the United States.