“Potemkin” Economic Sanctions, Take II

Two days ago, in response to the first reports of Soviet implementation of the threatened economic crackdown on Lithuania, the Center for Security Policy released a paper entitled An Effective U.S. Response to Soviet Economic Warfare Against Lithuania (No. 90-36, 17 April 1990). In this analysis, the Center identified a series of economic measures that would — if adopted by the United States — impose significant costs on Moscow for its coercive behavior and provide actual incentives toward genuine structural reform.

The following day, Secretary of State James Baker announced that the Bush Administration is actively considering retaliatory steps in the economic portfolio where the Soviets might benefit more than the United States. While the Center believes that Secretary Baker’s contention that arms control agreements are mutually beneficial is debatable — especially for those now in the works — it nonetheless welcomes the Administration’s stated openness to suspending initiatives in which the Soviets have a disproportionate interest.

In fact, each of the sanctions the Center recommends as responses to the Kremlin’s economic embargo of Lithuania falls squarely in this category:

• All energy cooperation, notably the U.S.-Soviet Energy Working Group charged with enhancing Soviet development and production activities, should be suspended at once. The Soviet Union stands to be the principal beneficiary of expanded access to energy resources which constitute Moscow’s principal source of hard currency earnings and economic leverage against freedom-bound entities within the USSR and against reformist governments in Eastern Europe.

 

• No action should be taken under current circumstances to grant the Soviet Union most-favored nation status. Improved terms for the sale of Soviet goods in the United States is manifestly more in the Kremlin’s interest than it is in ours.

 

• Restored Soviet access to U.S. Export-Import Bank credits and loan-guarantees through the waiver of the Jackson-Vanik Amendment should be indefinitely postponed. As Soviet creditworthiness plunges, such an exposure of the U.S. taxpayer to new liabilities in support of dubious private American investments in the Soviet Union simply cannot be described as in the United States’ interest.

 

• Liberalization of controls governing the transfer of militarily relevant high technology to the Soviet Union should be suspended immediately. The Soviet armed forces’ appetite for sophisticated "dual-use" technology vastly exceeds Moscow’s ability to pay for it. This means that relaxed export controls are likely simply to facilitate allied efforts to refurbish the Kremlin’s defense industrial base on credit — an outcome that is difficult to square with America’s commercial interests, to say nothing of those governing its national security.

 

• Deferring indefinitely settlement of defaulted Czarist and other Soviet debt obligations to the United States (including Lend-Lease). The now-imminent bilateral agreement to settle these liabilities for a fraction of their face value can hardly be described as a good deal for the U.S. government — or for those of its citizens to whom the USSR is indebted. Worse yet, the balance shifts even more decidedly in the Soviets’ favor if, as a result of this settlement, Moscow can begin issuing bonds and other debt instruments in the United States and on a dollar-denominated basis off-shore.

 

• Repudiation of the Bush Administration’s recent concession to Moscow whereby the Soviet Union can obtain observer status in the General Agreement on Tariffs and Trade (GATT) even before the Kremlin adopts price reform and other market practices needed to make its economy more compatible with the GATT system. Granting the Soviets access to this institution under such circumstances is in no way in the United States’ or the West’s interests. To the contrary, it is a formula for unwarranted economic assistance to Moscow and, inevitably, for Soviet mischief-making in an important free market trade organization.

 

• Soviet participation should be dropped in the European Bank for Reconstruction and Development — participation that will permit it to act both as a member of the institution as well as a borrower (however limited) of its funds. Such Soviet participation is very much in accordance with Moscow’s desire to obtain expanded access to Western financial assistance. Doing so, particularly at the expense of funding available to genuinely reforming East European private sectors and governments, is in no way in the U.S. interest.

Obviously, these sanctions offer a number of means whereby the United States could inflict significant and "appropriate" economic costs on the Soviet Union for its economic warfare activities against Lithuania. In contrast to some of the "Potemkin" — i.e., ineffectual — sanctions being mentioned by Administration officials as candidate retaliatory measures (such as merely delaying trade talks), these would impose real reverses on the Gorbachev regime’s plans for large-scale infusions of Western capital, technology and energy-related assistance. If complemented quickly by alliance-wide efforts to coordinate offsets of Soviet energy and other supplies now being cut-off to Lithuania, they could have a highly therapeutic effect on the emerging situation.

More importantly, however, the Center believes American adoption of these measures is very much in the U.S. national interest, with or without a crisis in Lithuania. As Frank J. Gaffney, Jr., the Center’s director put it today, "Moscow’s economic warfare against Lithuania has had at least one, somewhat beneficial effect. It obliges the Bush Administration to answer the following urgent question: Why is it that so much of the bilateral economic agenda now being pursued with Moscow is manifestly and disproportionately in the Soviet interest — and not in that of the United States?"

Copies of An Effective U.S. Response may be obtained by contacting the Center.