STATUS OF TECHNOLOGY SANCTIONS AGAINST THE USSR

Created: 8/14/1980

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Status of Technology Sanctions

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Uiwi Hazel Denton, NSC, for Ambassador-at-Large Henry Owens on impact of US

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SECRET

CENTRAL INTELLIGENCE AGENCY

WASHINGTON..

National Foreign Assessment Center

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MEMORANDUM FOR: Hazel Denton,

National Security Council

Status of Technology Sanctions

Against the USSR

Attached is the unclassified background material on the status of technology sanctions against the USSR which you requested for use by Ambassador Owens in testimony for Senator Proxmire. If you desire further assistance on this matter, please contact .

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Attachment:

as stated

Status of Technology Sanctions Against the USSR

In the months since economic sanctions were imposed against thc USSR, Western sales of industrial plant and machinery have dropped markedly. New contracts signed during January-June4 million, only about one-quarter of the rate for the post two years. While this slowdown may reflect in part the traditional drop in orders at the endive-year plan period, tacit Western support for US economic denial measures hasore important factor. Major Western governments have slowed commercial discussions on new industrial projects, mainly by delaying the extension of new credit lines and official credit guarantees. The cooperation appears aimed at least as much at accommodating US demarches as at punishing Moscow for Afghanistan. (U)

The willingness and ability of major Western governments to continue their support of the sanctions is uncertain. The business communities in Europe and Japan are anxious to resume sales to the Soviets. The governments in turn also are concerned that key economic interests could be affectedong-term deterioration in relations with the USSR. (U)

Status of Major Projects

Since sanctions were imposed in January, the Soviet Union has signed only one major contractestern firm0 million deal with the French for on offshore oil rig fabrication yard at Baku-Astrakhan. Discussions have proceeded on other projects, but to date few deals have been concluded. In some cases, the denial of US technology and equipment has set back Soviet timetables or reduced the level of technology for key projects. The two most notable examples involve the contract awarded jointly to Armco and Japan's Nippon Steel to0 million steel mill at Novolipetsk and an Alcoa-West German bid0 million aluminum smelter at Sayansk. In each case, US withdrawal has meant that the USSR- has had to redesign the project and accept less sophisticated technology. Discussions on projects not involving US firms also have been delayed by decisions of most major Western governments to withhold new officially-backed credits. (U)

Sanctions apparently haveess impact to date on projects already underway. For the Kama River Truck Plant, US equipment needed to complete the first phase of the facility was already in operation or on site when the sanctions were imposed. esult, operations at the plant do not appear to have been materially affected by the embargo. The denial measures have notrimp in Western sales of large-diameter

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pipe to the Soviet Union. Since the first of the year, the Soviets haveillion tons of such pipe needed for its ongoing pipeline construction program. West German and Japanese firmsraditionally the USSR's mainontracted to sell three-quarters of the total tonnage. (U)

Status of Credit Negotiations

At the beginningll major allies were in the

process of negotiating new credit extensions to the Soviets. To

date, only France and Japan have granted new officially-backed

financing.for exports to the USSR.

a Paris reached agreement with the Soviets on the terms of government-backed credits for exports, but did not specify an amount of credit to be provided.

a Following several months delay, TokyoJapanese Eximbank loan for the sale of large-diameter pipe, but only after obtaining Washington's approval. The Japanese have not reopened talkscancelled in Januaryon officially-backed financing for Siberian development projects.

The West German government has asserted that it will not curtail credit guarantees for the USSR, but to date Bonn has announced no new guarantee approvals. Italy has postponed negotiations with the Soviets on establishing termsew credit line, although the minister of foreign trade recently announced plans toroposal to the Italian government for the reopening of credit discussions with the Soviets. Both the United Kingdom and Canada allowed their credit lines to the USSR to expire and have stated that future official financing will be considered onlyase-by-case basis. (U)

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Mount inff Countcrpressiires

Although the West European countries and Japan have on balance supported the US on the denial measures, they have also kept thc door to thc Soviet market ajar. Unwilling to directly oppose the US on sanctions, these governments are all feeling strong pressures from their own firms interested in selling to the Soviets. Moscow has whetted the appetite of these firms by offering up the prospect of large contracts over the next several years contingent upon the availability of governmcnt-hacked financing. Japanese firms, for example, recently agreed in principle to sell theillion tons of large-diameter pipe. They are hopeful ofontract1 deliveries soon. Italian firms have reached similar framework agreements to supply large-diameter pipe and chemical plants over the next several years. (U)

Western Europe's Interest in continued trade with the USSR extends beyond developing export markets. For example, the eagerness of the West Europeans to begin negotiationsassive natural gas pipeline from the USSR to Western Europe reflects their desire to diversify future energy supplies as well as5 billion in sales of pipe and equipment the project would generate. (U)

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