Finding Common Ground: U.S. Export Controls in a Changed Global Environment, Commissioned Papers (1991)

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3. HE DEMOCRATIC REVOLUTION IN lisle EAST AND ITS IMPLICATIONS FOR COCOH This section discusses the F.R.G. 's perspectives on how Cocom shout d adapt to the current political and economic changes under way in the Eastern bloc. The anal ysis begins by considering the potential impact of German unit ication upon Cocom. Subsequently, the implications of German unif ication for CoCom's approach to the other Eastern European countries t Hungary, Poland, Czechosiovakia) are discussed. Finally, the F.R.G.'s perspective on the future of CoCom and the Soviet Union is examined. 3.1. The German Democratic Republic, Cocoa, and German Unification 3.1.1 . Cocoa and the Unified Germany While still a matter of some speculation, it is probably correct to assume that political unification between the two Germanies is likely to happen in 1991. The East German election of March 18, 1990 represented the first formal step in this process, as the population of East Germany voted for unification via Article 23.51 As unification occurs according to the provisions of Article 23, and when the G.D.R. ceases to exist as an independent state/ so will its def inition as a target country West und Ost, op.cit. 51 The COU, which has advocated unification according to Article 23 won an overwhelming, though not absolute majority. .' 25

in CoCom. At this time, the West German foreign trade law or Aussenwirtschaftsgesetz (A~G) and its export control system -- including the F.R.G.'s membership in Cocom--will be extended to the Oder-NeiSe line. In other words, the territory of the G.D.R. will become part of Cocom, and none of the current controls will apply.52 This section is divided into two parts. The first part discusses the short and medium term situation, characterized by economic unity In the context of continued political division. The second part examines three aspects of unification which pose a challenge to CoCom: the changes necessary in the Cocom list to address problems of nuclear safety and environmental clan-up; and the fact that even after unification Soviet troops are likely to remain in East Germany for some time. 3.1.2. Short and Medium Run: Economic Unity and Political Division --Implications for Cocom While the eventual merging of the two German states poses no significant problems for Cocom, the situation in the short and medium run is far more complicated. The legal framework for an economic union of the two Germanies will be implemented with a treaty between the two Germanies by the first of July. As mentioned above, however, political unification will not be realized before 1991. As a consequence there will be an interim S2 Interviews; this would include the munitions as well as nuclear lists. 26

period of at least several months possibly a year during which the two Germanies will be economically unified but politically divided. In other words while there will be a single German economy with a single currency, tax, social, and legal system, Germany as a political unit will continue to be defined by two separate states.53 The implications of this situation for Cocom are considerable. The G.D.R. will continue to exist as a sovereign state and thus theoretically remains a CoCom target country until political unification is completed. Yet the same country will have lost its economic sovereignty to another country --the F.R.G.-- that is a member of CoCom. As a consequence CoCom would have to apply export controls to part of an economy that belongs to one of its own members states. In fact, the F.R.G. itself would have to implement CoCom restrictions against a section of its economy. There is a broad consensus in both the F.R.G. and the G.D.R. that such a policy would be extremely difficult to implement.54 The continued application of export controls to the G... would severely hamper the process of economic union. First, part of the ~ ega ~ f r amework o f the economic union could not be implemented since the AWG would not be extended to East German 53 This does not exclude the possibility that a whole series of special regulations apply to the Eastern part of the new German economy. For example it is likely that East germany's membership in the EC will require a series of interim agreements that apply only to that part of the economy. 54 Interviews. 27

territory. This would create considerable competitive asymmetries and would lead to distortions in the allocaticn of resources, as industries would export and import under the system which was most conducive to their own interests, and might well relocate some of their production facilities to suit their particular trading interests. Second, if the G.D.R. remains a Cocom target country, it would be forced to maintain all border and custom controls. Yet effective regulation of the sharply increased flow of goods and people would simply not be feasible along an inner German border.55 Realistically, goods that can be purchased over the counter in the F.R.G. or even in other European countries and fit in a passenger car can no longer be controlled between the two Germanies. As one official acknowledged, the borders between West Germany and the G.D.R. and its Eastern European neighbors are virtually open, with no real controls on technology shipments. The same is true for technical expertise and know how which cannot be controlled at all. Finally, technology is not only transported through hardware but also through software. When an integrated communications system is set up between the two Germanies, the flow of software can no longer be controlled. Third, the continued maintenance of export controls would cause a negative private sector reaction. Current estimates of the costs to integrate the East German into the West German 55 In fact both governments have already pledged to abandon border controls before the beginning of the summer vacations in Early July. 28

economy range from OM 65 billion to DM 85 billion per year for approximately 8-10 years. Probably 50% of that cost will be paid by the West German government (state and federal). The rest will have to be covered by private sector investment from the F.R.G. and other industrial countries.56 In fact, the success of economic union hinges on the active participation of the industrial countries in the form of capital investment, including the transfer of technology and knowledge. Without this investment, the risk of renewed waves of East German emigration to the F.R.G. would be high, and the entire process of unification would come under severe strain. Yet if export controls remain after the second of July, the investment necessary to restructure the East German economy would not be made.57 According to West German and other European executives, 56 According to one high ranking advisor to the East German government "75% of the G.D.R. 's industry is not even subsidizable and has to be rebuilt entirely . ", Prof essor Albert Jugel, Department for Information Technology, Technical University of Dresden, "Basic Problems of the East German E<:onomy't, American Institute for Contemporary German Studies, April 24, 1990 . While all estimates on the. East German economy have to be taken with care since there is total lac3< of data it gives at ~ east an indication of the extent of the investment required. Contrary to the other Eastern European countries, the G.D.R. 's economy will be backed up by the DM and thus the West German economy which should make it easier to raise investment capital in global capital markets. 57 "Foderungen nach Kurzung der Cocom-Liste,t' Frankfurter Aligemeine, 1.21.1990; Friedrich Wokurka from the VEB Kombinat Robotron stated that the G.D.R. computer industry cannot improve unless the CoCom barriers fall, see "Japaner schon in Wohnzimmer. DDR Computerindustrie will 'Geld fliessen sehen'," Handelsblatt, 3.23.1990; "COCOM: Probleme nach der Wiedervereinigung -- Verflixte Liste," Wirtschaftswoche, No.15, 4.6.1990, p.27; "Cocom-Liste verhindert Fax mit der DDR," Frankfurter Aligemeine, 3.18.1990; "Hilfe fur die DOR soil nicht an Cocom scheitern,i' 29

it is inconceivable t..at investors would agree to equip the East German economy, which within a year or two will be part of a European economy that competes heavily in global markets, with anything but the latest technology.58 Furthermore, many planned joint ventures that have already been agreed upon would not take place.59 The attractiveness of lower wage rates could never outweigh the disadvantages that would accrue to a company if it could not utilize the most modern technology available. Fourth, another important consideration is that the social and economic cost of unification will be high for both Germanies. For example, current studies project the short run unemployment rate in East Germany to be as high as 3S% of the entire work force. These workers will require unemployment benefits and retraining programs, which for the most part have to be paid for by the F.R.G. Lack of investment in the East German economy could substantially worsen this situation by raising unemployment even more and thus requiring more resources. Yet the F.~.G. government cannot accept such an additional burden. As one high Frankfurter Allgemeine, 2.1.1990. 58 Interviews; some have suggested that one could presumable have two production lines that would produce goods such as machine tools and computers with different technologies. This would be very costly since you would have to maintain an entire second the servicing system. Moreover contrary top the Japanese and American producers German machine tolls producers are rather small and it would not be economically feasible to maintain two separate production lines. See also "Wirtschaftswoche- Technologieforum. Geanderte Fronten," Wirtschaftswoche, 3.30.1990. 59 ''Osthandel: Kampf dem CoCom," D~x Spiegel, 4.16.1990, p.114. 30

ranking official in Bonn stated, ''do you really think we can justify an additional tax increase in West Germany to finance even higher unemployment and an even larger productivity gap -- which is already between one third and one half-- just because the East Germans can't use the most advanced technology available on the world market. How do you expect them t the East Germans] to compete in world markets, if you don't give them this technology?".60 It must also be emphasized that economic union can only succeed if the G.D.R.'s economy can maintain its traditional economic links with the Soviet Union, which is a major importer of East German industrial goods. However, the trade payments among the CMEA countries will likely be converted to a dollar basis in the near future.61 Since under these circumstances the Soviet Union will no longer have to purchase its imports from within the CMEA but can choose from the global market place, the G.D.R. will have to compete for Soviet orders with the industrialized countries and the NICs. Fifth, West German businesses and politicians argue that a continued application of Cocom principles to East Germany will lead to charges that the U.S. is using its dominant role within CoCom to further its commercial interests. Industries engaged in the modernization of the (East) German economy resent the fact 60 Interview; in this context it must also be remembered that there are federal elections in the F.R.G. on December 2, 1990. 61 This has been requested by the Soviets at the last CMEA meeting in Sofia. 31

that the U.S. is trying to place limitations on the technological sophistication of one of its major competitors. Finally, the symbolic character of re-erecting an "economic wall" would be a political impossibility. In fact, West German policy makers are concerned that there would be a very strong ant'-American backlash in the German population if it became known that the source of all the difficulties and costs arising from a continued application of export controls to East Germany lay not in Bonn but in Washington. Government officials in Bonn who are currently developing ideas for new cooperative structures in the post-cold war world order consider these strains as undermining an already very difficult task. - The F.R.G. is receiving considerable support from its European partners not just on an individual country basis but also from various European organizations such as the European Community (EC) and the West European Union (WEU) for its position.62 For example, in a recommendation to the Council of ministers, the the assembly of the WEU has asked for a drastic 62 For more on the EC see section 4. below. For statements by individual countries, see "Washington Stellt Meistbegunstigung fur Moskau in AUSSiCht," Fankfurter Aligemeine, 11.18.1989; "Mitterand will Frankreichs Platz im Osten sichern," Frankfurter Aligemeine, 3.13.1990; "Cossiga: COCOM-Regein sind uberholtes Dogma," Neues Deutschiand, 10.14./15.1989; "Italien will Cocom andern," Nachrichten fur den Aussenhande1, 10.16~1989; "Rom fordert Cocom Revision," Handelsblatt, 10.25.1989; "Gegen Handelserisichterungen fur strategische Guter, ~t Tagesspiegel, 26.10.1989; "Kein Wirtschaftsfulihorn fur Moskau," Frankfurter Aligemeine, 12.1.1989. 32

reduction in the CoCom list.63 In the words of the author of the report "one has to rid oneself of this product of the Cold War.~64 The formation of a common front among the Europeans in Cocom is being fostered in two ways. First, in many projects, especially in the field of telecommunications, European industries are working together increasingly in the form of consortia, joint ventures, common R&D facilities, and so forth.65 Secondly if only the F.R.G. stopped applying Cocom restrictions to the G.D.R., West German industry would obtain a major competitive advantage, since in many of the most profitable business opportunities in the G.D.R. they would have no competitors. As one EC official said, "Nobody can have an interest that state monopolies will be replaced by private ones. Other European governments would come under severe 63 Note that there are eight members of NATO and the EC in the WEU. 64 "WEU fur Striche an COCOM-Praxis," Neues Deutschiand, 12.7.1989; see also "Reformer in Mittel- und Osteuropa zwingen die WEU in eine neue Rolie," Die Welt, 12.4.1989. 65 For example the recent contract between Alcatel and the G.D.~. to supply '5 digital telephone exchanges , including 34,000 lines, to East Germany was signed by Mr.Gerhard Zeidler, director of Alcatel's West German subsidiary, "Cocom close to high-tech sales agreement," Financial Times, 2.16.1990; Siemens and Alactel are currently awaiting approval from CoCom to manufacture digital exchanges in the Soviet Union, see "Moscow to launch giant telecoms satellites," Financial Times, 4.3.1990; the trend towards a European position was also apparent during the recent international computer trade fair CeBIT in Hannover, see for example, "Sturm auf die Bastion Cocom," Suddeutsche Zeitung, 3.22.1990; "Computerbranche macht gegen die Cocom-Liste Front," Frankfurter Rundschau, 3.21.1990. 66 "Durch Die Hintertur," Der Spiegel, No.17 (1990), p.35-6. 33

pressure from their own industries to grant unrestricted access to the East German market, since they would not want the Germans to monopolize the G.D.R. economy. Under such circumstances it is likely that CoCom --at least with regard to the G.D.R.-- would disintegrate rather quickly as a consequence of unilateral exits by other European countries.67 In light of the above considerations, it is clear that CoCom must turn to the task of determining a special status for the G.D.R.68 One possibility would be to give the G.D.R. the same status as the neutral countries like Switzerland or Sweden.69 However, there are at least three reasons why this would not be a good solution. First, the G.D.R. is not neutral but still formally a member of the Warsaw Pact.70 Secondly, the G.D.R. has no experience in export controls, nor does it have the bureaucratic structure to effectively duplicate the Swiss modei. Finally, a central element of the Swiss model is based on the distinguishability of domestic and foreign technology. Given the 67Interviews. 68 This status should not be determined by S-Com, the committee usually dealing with issues regarding the G.~.R. but by all members. The S-com members are: United States, Britain, France, Danemark and Holland. 69 For a discussion of the Swiss case see Jurg Martin Gabriel, Schweizer Neutralitat im West-Ost Handel, Bern: Haupt, ~ 9 8 7 . For a recent dispute between the U.S. and Switzerland over CoCom, see "Schweizer Exporte zwingen Washington zur Entrumpelung der CoCom-Liste,tt Handelsblatt' 1.24.1990. 70 The Soviets will not give up their rights over East Germany prematurely in return for the G.D.R. to take on a "Swiss" status in Cocom unless it is of any benefit to them. 34

degree of economic integration of the German~es after July 2, this would be impossible.71 According to Bonn, the most effective and least costly solution would entail a common foreign trade and export control law for the two portions of the-united German economy. This solution would avoid the development of cumbersome new regulations for all Cocom members and the establishment of a separate, East-German export control bureaucracy. The common foreign trade law could be either the F.R.G.'s AWG, or a new system negotiated between the German states.72 Given the time frame of the economic union and East Germany's inexperience with export controls, an extension of the AWG would be more feasible. From an operational standpoint, this option would be feasible as early as July 2, since by that date all 11,000 East German custom officers will be fully trained in West-Ge~man custom laws. If the AWG were extended to East Germany, exports from the G.D.R. would come under West German law including the F.R.G.'s export control system and its commitments to CoCom.73 For 71 This problematic is also more and more apparent in the Swiss case as the global division of labor and the globalization of production advances blurring the distinction between national centers of production. 72 Such a new law would be structured around the three following elements: (a) the list of controlled goods; (b) the nature of the institution --currently the BAW-- that controls the exports of restricted goods; and (c) the execution of the export controls. 73 This does not imply that border controls between the Germanies will disappear entirely. In fact given the degree of differentiation between the two economies it is likely that some invisible borders will remain between them until productivity 35

imports to the G. D. R., a special i nterim sol ution would be necessary unti ~ pal itical unit ication . This solution would entai 1 exempting the G . D. R. from most CoCom restrictions with exceptions of the munitions and arms ~ ist and a selected number of items on the nuclear list. 74 Once the political unification process is completed, these remaining controls wc~u~ d become unnecessary. 3 .1. 3 . Three Special Challenges Three aspects of German unification pose special challenges to Cocom. The first challenge arises from the urgent need to reduce the level of pollution in East Germany.75 The problem of severe environmental pollution in East Germany led to proposals levels and prices will have moved closer together; in addition in order to implement the transitory arrangements with the EC some control system at the border or the source has to be maintained. Finally, some controls need to be maintained to protect the West German economy and the EC at large from third country imports through the G.D.R. However, all of these measures are in support of a relatively smooth transition period until the East German economy has partially adjusted to West German and European conditions. They are.. not meant to retard that process as an export control system would do. 74 This has already been requested publicly by the F. R. G. with respect to telecommunications, see "Bonn fordert Son~lerregelung im Cocom fur die ODR, " Frankfurter Aligemeine, 3.23.1990. 7S See for example "Des Land der 1000 Vulkane, " Der Spiegel, No.2, 1.7.1990, pp.27-33; "Die Leute werden dun in Kopf," Der Spiegel, No.2, 1.7.1990, pp.35-46; t'Die Unwept -- Last der DDR," Frankfurter Allaemeine, 1.22.1990; "Ohne Reinigung kann man nicht mal die Felder bewassern," Die Welt, 1.31.1990; "Polluted East Germany", Christian Science Monitor, 3.16.1990; "a. Germany's Bitterfeld: Grimiest Town in Dirtiest Country, " Washington Post, 4.16.1990. 36

for the formation of an environmental union between the F.R.G. and the G.D.R., whose mission would be to design projects to reduce East German pollution. Yet it quickly became apparent that much of the equipment needed to control emissions from G.D.R. factories relies on modern technologies that are restricted by the CoCom list.76 The fact that CoCom restrictions may obstruct the progress of urgently-needed initiatives to reduce pollution in the G.D.R. has provoked popular outrage and has catalyzed numerous parliamentary debates and committee hearings. If not resolved before the Fall, this problem will become a campaign issue in the Federal election of December 2.77 The current government, however, has indicated that it will not permit CoCom to stand in the way of the F.R.G.'s efforts to clean the environment in East Germany.78 In fact, the issue of pollution reduction has not only intensified the pressure for liberalizing the lists; it has also created a more general awareness of the existence of export controls among the general 76 These technologies involve measurement and control in of emission of power plants especially in the case of lignite, see for example Klaus Broichhausen, "Cocom wird den kaltem Krieg uberieben," Frankfurter Aligemeine, 2.13.1990; Josef Vosen, DDR und COCOM, 3.29.1990. 77 Cocom-Liste konnte Wahlkampfthema werden," Handeslblatt, 3.29.3990. 78 Interviews; in addition to the need to import this technology the G.D.R. also hopes to develop an industry manufacturing this technology. Given the environmental state of all of Eastern Europe this is considered as a major growth stimulus for the G.D.R. economy, see "Hilfen fur die DDR zugesichert. Wissmann fur schnelle Lockerung der Cocom Liste, " Handelsblatt, 3.15.1990. 37

public in the F.R.G., and has strengthened the political and economic forces which characterize CoCom as a relic of the Cold War and an instrument of U.S. coercion and commercial policy. The second challenge to Cocom became evident when the opening of the border between the two Germanies revealed the terrible safety standards of East German nuclear reactors.79 Their condition is so bad that after inspection by research teams from the F.R.G., sections of nuclear plants had to be closed immediately to avoid a potential disaster. The only way to continue to operate these plants is to raise safety standards to Western levels. This requires a major infusion of Western technology, including not only items on the dual use list (as in the case of environmental pollutions, but also items on the nuclear list.80 Public discussion of this issue parallels the debate on environmental pollution, with increasing awareness and anger among citizens and politicians that CoCom is exposing the German 79 See for example lt~ersprodung ist nicht die einzige Gefahr," Frankfurter Aligemeine, 3.17.1990; "Zeitbobme Tschernobyl Nord,'-' Der Spiegel, No.S (1990), pp.30-45; "Mit den Jahren sprode," Der Spiegel, No.8 (1990), p.45; 80 Among others this invioves technology that is capable of a very high data processing range (a) for the simulation of an accident because of the need to train people and (b) for the control requirements that is not linked to the normal control of a reactor in the case of an accident; obviously the U.S. worries because of the simulation technology that has an important military aplication. However this technology is easy to localize, interview; see also "Keine Erieichterung fur die Sowjetunion. die Cocom-Liste soil weiter gekurzt werden," Handelsblatt, 2.19.1990; K1aus Broichhausen, "Cocom wird den kaltem Krieg uberieben," Frankfurter All~emeine, 2.13.199a. 38

population to the threat of a nuclear disaster. As one respondent argued, ''you cannot defend the Cocom position anymore, people in the street do not understand that reactor security in the G.D.R. has to fail because it requires a computer that could also be used in a different way". Given the political changes that have taken place in the East, the potential damage of nuclear accidents in Eastern Europe and the Soviet Union far outweighs the potential loss in the need time on nuclear technology. As one Bonn member of parliament put it, "the chances for citizens of the Federal republic of getting annihilated by a nuclear accident in Greifswald LEast German nuclear power plant] are far greater than by a [Soviet] SS-20. In response to questioning by the opposition in Parliament, the government stated that all items that can enhance the safety of the nuclear reactors in East Germany --including those on the nuclear list -- must be liberalized.82 The final challenge involves the fact that the creation of a new collective European security structure is likely to take longer than the process of German unification. Yet so far, the Soviets have not indicated that they will withdraw their troops before such a new European security structure has been established. It is thus likely that from a security perspective a united Germany will remain divided for some time, as Soviet troops will be stationed on former East German territory. So 81 Interviews 82 Interviews 39

Germany--a Cocom member--will host troops on its soil from the Soviet Union--a Cocom target country. While officials in Bonn admit that this might pose some problems, they agreed that "even under these circumstances the flow of high technology cannot be restricted".83 For one thing, depending on the extent to which the Soviets themselves will get access to the items on the CoCom list, they would be available for import to the Soviet Union anyhow. As to the munitions and nuclear lists, various schemes to restrict access by the soviet military could be established. For example, a special licensing system could be set up to restrict the production, storage, and distribution of these items on East German territory until Soviets troops are withdrawn. Another possibility would be to establish an end-use control and verification system that would protect the East German plants and goods from the Soviet military.84 To some degree the option chosen will depend on the time for which Soviet soldiers will remain in Germany, and on their freedom of movement in former East-German territory.85 Any further discussion of this issue should, however, await the 83 Interview. 84 This would exclude items on the nuclear list that are required to increase the safety standards of nuclear reactors in the Eastern part of Germany. 85 Obviously the continued presence of Soviet soldiers inside a unified Germany might necessitate some form of control at the former inner German border unless these troops will be strictly confined to their barracks a situation that more or less existed up to the present 40

developments of the two plus four negotiation over the next few of months in order to get a better picture of the political and economic conditions the Soviet Union wail attach to their final acceptance of German unification. 3.2. Eastern Europe Since Eastern Europe is not the major focus of this study, this section examines only-two questions. The first addresses the possible impact of German unification upon other Eastern European countries.86 The F.R.G. does not see any reason why other Eastern European countries which are also engaged in a process of political and economic reform should be treated differently by CoCom than the G.D.R. "Discriminating in favor of the G.~.R. would be sending the wrong signals to the rest of Eastern Europe", said one official in Bonn, 87 thereby articulating the general consensus in the West German public and private sectors that the developments in the G.D.R. should not distract from the overall effort to reform CoCom in light of the developments in the entire Eastern bloc. As one official said, awe will not and we cannot trade a success with respect to the 86 For the purpose of this study Eastern Europe refers to Hungary, Poland, and Czechoslovakia as they were also the focus of the recent liberalization measures proposed by the U.S. in Paris. 87 Interview; the SPD has warned that such discrimination especially by moving the technological barrier to the Polish border could complicate the unification process, "Bonn fordert Sonderregelung im Cocom fur die DDR," Frankfurter Aligemeine, 3~23.1990; "Differenzen um Abbau der Cocom-Kontrolle", Handelsblatt, 3.23.1990. 41

G. D.R. against failure to move with respect to Eastern Europe. Our position regarding the overhaul of Cocom isn' t just restricted to the G. D.R.; this position is valid for all of Eastern Europe and the Soviet Union, and is designed to support the democratic and economic reform process in those countries and to develop markets for our industry. tt88 Furthermore, treating the other Eastern European countries differently would simply intensify the enormous difficulties that they will face in reforming their economies. East Germany is in the fortunate position of receiving special support from West Germany: and the rest of Eastern Europe has begun to fear that the bulk of foreign investment will flow into the G.D.R., which within a few years will be integrated into the largest and most prosperous economy in the EC. Thus, any discrimination by the West against these Eastern European countries could greatly obstruct the progress of reform. As one West German official observed, "The major purpose now is to support the emerging democracies and economies in Eastern Europe. Now to come to the Hungarians, and say you can't have these machines or that telephone equipment because it also has military relevance, is 88 Interviews; Hans-Jurgen Mahnke, "Der Cocom Arger," Did Welt, 2.3.1990; "Wissmann will die Auflockerung der Cocom-Liste," General-&nzeiger, 1.20.1990; ~Union: Deutliche Kurzung der Cocom- liste notig," Die Welt, 1.22.1990; "Union fordert Verkurzung der COCOM-Liste," S0~deutsche Zeitung, 1.22.1990; some officials however conceded that "the special solution in the long run for G.D.R. alone is not acceptable, but maybe for an interim period until a long term plan is worked out. n 42

just outright crazy" . 89 Just as in the case of the G . D . R., liberalization of Cocom is no substitute for fundamental economic reform, but it is an ~ mportant complement which will facilitate the flow of private investment and help the economies of Eastern Europe attain the technical ant] qual ity standards necessary to compete in world markets.90 In this connection, officials in Bonn pointed out that they do not consider the liberalization of the Cocom as a reward for "good behavior". To the contrary, it is one of the many mechanisms through which the Western alliance can support the Eastern European reform process.91 As one respondent said, "if we don't succeed with the reintegration tof Eastern Europe] within the next 5-6 years than we have massive problems; this is why it is so important to consider technology transfer as an instrument of reintegration of these economies into the world economy."92 Thus, rather than seeing access to modern technology as a final reward for the establishment of political democracy and the development of a market economy, the F.R.G. considers it as means to achieve those goals and facilitate their 89 Interview; see also "COCOM list Negotiations Show Some Progress, " The Week in Germany, 2 . 23 . 1990. West German officials also criticize the fact that CoCom is "frustrating East-West scientif lo cooperation . a, "Adam-Schw&tzer Urges U. S . to Invest in East", The Week in Germany, 3 . 23 .1990, p. 3 90 Statement by ache economic spokesman of the CDU/CSU parliamentary group, Matthias wissmann, 1.21.1990, 7842h. 9] Klaus Broichhausen, "Cocom wird den kalten Krieg uberieben, " Frankfurter Aligemeine, 2 . 13 . 1990 . 92 View 43

fulfillment.93 Moreover, liberalizing Western export controls can contribute to the success of political and social reforms. The Europeans argue that modern technology--especially in the area of teleco~unications--allows for a more decentralized structure of society in which the means of information are not at the hand of a small minority.94 Computers, communications technology and a modern media and information system contribute to a more open and decentralized society in which a return to a repressive regime would be much more difficult.95 In sum, the F.R.G. and its European allies strongly support the liberalization of CoCom restrictions for the countries of Eastern Europe. The conflict with the U.S. comes not so much over the general concept of liberalization, but over its precise mechanisms and extent. During the February CoCom meeting in Paris, the U.S. suggested that the Cocom restrictions currently in place for Eastern Europe could be liberalized if those countries established an effective control system to ensure that the goods would not be re-exported to the Soviet Union.96 93 See Section 2.~.~. above on the differences between the U.S. and the F.R.G.. 94 Cocoa takes a hard route to a softer line," Financial Times, 2.14.1990. 95 See also the work by the European Strategy Group at the Stiftung Wissenschaft und Politik in Ebenhausen, F.R.G. 96 In fact the U.S. has already started untechnical exchanges with Poland, Hungary and Czechoslovakia to advise them on setting up control systems and establish procedures that would allow Western inspectors check on-site in customer countries, see 44

Yet the F.R.G. and other European countries are highly skeptical of such a proposition.97 First, they doubt that custom officials in Eastern Europe currently possess the technical expertise to prevent all re-export of high-technology goods to the Soviet Union. "The creation of an effective export control system would require the establishment of an huge bureaucratic apparatus which would likely become redundant before it was fully operational. Besides, it would involve considerable costs at a time when scarce financial resources in the Eastern European economies should be allocated to the development of a modern economic infrastructure, and not to the creation of an elaborate governmental apparatus that restricts and therefore delays technological progress. Concerning the proposed end-user checks and on site verifications, the F.R.G.--and all other European countries-- resist U.S. proposals for significant enlargements of their bureaucracies in order to carry out such verification procedures.98 As one government official said, Current developments in the East call for a simplification of the CoCom regime, not its enlargement and further complication. n99 The "US leads moves to ease Cocom licensing, n Financial Times, 3.6.1990. 97 nCocom close to high-tech sales agreement, n Financial Times, 2.16.1990. 98 'iCocom takes a hard route to a softer line," Financial Times, 2.14.1990. 99 Interview. 45

possibility of on-site verification is further complicated by the fact that West German law prohibits its custom officers from exercising control functions or any other duties on foreign territory. 100 More fundamentally, the F.R.G. (and all other Europeans) rejects the U.S.'s proposal that Eastern European countries be granted exceptions to the CoCom list in the form of ''favorable considerations". Since a favorable consideration is a one time permission, it gives the liberalization process a transitory quality and allows the U.S. to reverse the process with a veto at any time.l°l The conflict over favorable consideration illustrates the continued fundamental differences between the U.S. and the F.R.G. over the reform of CoCom. The transient nature of the U.S. proposal indicates that the U.S. sees the liberalization of export controls as a reward for adequate behavior that can be withdrawn anytime. Under these circumstances, economic cooperation cannot be an important element in creating the new post-cold war collective security regime. The F.R.G., on the other hand, considers CoCom liberalization as a vital mechanism to encourage reform, and as an important gesture of trust, confidence, and support for a very 100 Interview. i01 Reinhard Rode, "CoCom am Ende?", Hessische Stiftung fur Frieclens- und Konf lik~forschung, Frankfurt: March 1990 . 46

- ~ difficult task. 102 In this context, transitory liberalization measures send the wrong political and economic message. As one off icial argued, "what kind of a statement is it when we do not trust the sincere efforts of those countries to rid themselves from the political and economic chains of the last 45 years?'':O3 Considering that the modernization of the Eastern European economies will require ma jar capital investments and significant transfers of technology, another respondent stated that ''this [the U.S. proposal in Paris] is not the way to reintegrate the Eastern European economies into the European economic space and the world economy. Do you really expect LHestern] enterprises to invest in a joint venture or a new production facility in Eastern Europe, if at any moment the Cocom can intervene and stop that process by restricting the flow of technology?" And as another respondent queried, "why should we plan to install a new digital telephone system in [country X] if there is even a slight chance that half way through we have to stop and withdraw our operations but cannot reverse the investment made?''1O4 In sum, both public and private sector actors in the F.R.G. see the need for permanent, not temporary, liberalization of the CoCom lists for the Eastern European countries in order to ensure a stable, institutionalized environment for Eastern economic recovery and 102 Statement by the economic spokesman of the CDU/CSU parliamentary group, Matthias Wissmann, 1.21.1990, 7842h. 103 Interview 104 Interviews. 47

Western capital investment. As an alternative to the U.S proposal for partial and temporary ~ iberal i Ration of the CoCom restrictions for Eastern Europe, the F.R.G. calls for a general streamlining of the entire industrial list.105 This streamlining would reduce the restricted list to a small core of high technology products, and permit all other goods to be exported freely to Eastern Europe.106 The streamlining should be guided by the general principle that only those dual use goods whose military application clearly outweighs their civilian use should remain on the list. The implementation of this new guideline would require two changes in the review process. The first would involve an alteration in the definition of the strategic criteria which guide the selection process. For example, rather than saying 'ta significant contribution to the military potentials officials in Bonn suggested it should read Pa very significant contribution". A second change would involve a shift of the burden of proof away from the exporter to the controlling authority. This suggested change reflects the F.R.G.'S traditional approach to trade' which i05 So for example Helmut Haussmann during a speech at CeBIT, ~Mosbacher und Hausmann auf dem internationalen CeBIT- forum 'Business USA' in Hannover. Bald ein modernes und liberates Cocom-System, n 8.n~.l5hi~£~, 3 · 23 · 1990 ~ i06 Again an important factor here is the private sector will not _nvest in outdated technology, see aWirtschaftswocbe- Technolocieforum. Ge~nderte Fronten,~ W~rtschaftswoche, 3.30.1990: ~Milliarden-Auf~r~ge durch Cocom behindert, Initiative for die Lockerung der Liste," ~~o&DY~_~e.~i=~, 12.16.1989. 48

is seen as an unrestricted right rather than as a regulated privilege as in the U.S. This proposed change also embodies the F.R.G.'s contention that the changes occurring in the Eastern bloc have shifted the balance between confrontation and cooperation in East-West relations in favor of the latter. Such a shift must be reflected not only in the rethoric of the western alliance, but also in the procedures of the institutions that deal with export controls. Shifting the burden of proof on the controlling authority would give ~ clear sign that the emphasis has shifted away from confrontation towards cooperation, while at the same time keeping the necessary safeguards in place. If both these changes are implemented, a considerable reduction of the present industrial list could be achieved. Most officials in the F.R.G. agreed that the streamlining exercise could lead to a reduction of the industrial list in the range of 70% to 90%.1°7 The remaining items should remain on the list, but their parameters (such as microns and processing data range) should be liberalized. This would leave a small core list of clearly militarily relevant technology that all Cocom members have an interest in controlling. To smoothen the transition to such a list, it is conceivable to establish a temporary safeguard regime for a few items that will eventually be taken off the list. The regime could be based on an end-use verification i07 Interviews; see also Reinhard Rode, ~CoCom am Ende?", Hessische Stiftung for Friedens- und Konflik~forschung, Frankfurt: March 1990; ~Schwarz-Schilling for Abschaffung t', op. cit. ~9

scheme . As several respondents suggested, the current mechanisms developed in Geneva at the THF talks could serve as a guide. Turning to the atomic energy and the munitions list, there is little difference between the positions of the U. S. and the F.R.G. with regard to munitions, as the F.R.G. agrees that this list should remain untouched . With regard to the atomic energy ~ ist, the F . ~ . G . takes the position that those items which are necessary to increase the saf sty standards of atomic reactors must be made available to Eastern Europe as well.l08 However, this could be done on a case by case basis using the favorable consideration principle. In addition, since these goods will be limited in variety and amount, they could easily be included in a safeguard regime based on site verification. Officials in Bonn realize that such a proposal for Eastern Europe could not be finalized in time for the June meeting in Paris. This explains why Bonn agreed to the policy response approach. "At least we could define the areas where we had to act i~medaitely; here we've got to streamline fast, and if we · . . succeed the most urgent pressure is gone", said one of the respondents. But he continued that the results of the June meeting must be seen as temporary and that the U.S. has to commit itself to the general exercise of streamlining to arrive at a 108 Soviet nuclear reactors like those in the G.D.R. are also located in Czechoslovakia and Bulgaria, see ~Foderungen nach XOrzung der Cocom-Liste,. op.cit.: ~Union: Deutliche ROrz~ng der Cocom-liste nOtig,'t Die Welt, 1.22.1990; "Union will Cocom- Lockerung, n Handelsbaltt, 1.27./28.1990. ~0

core list within a few months.l09 "it took only two weeks to agree As to the actual degree of ' "Afterall," said one official, on the China green line.~110 iberalization, Bonn argues that accer~tab] e level for the near cannot be on the China green line would be an acceptable level for the near term, i.-e. the June meeting.lll However, this level a favorable consideration basis and the U.S. must assure its partners in Cocom that this agreement is only an interim step on the way towards the general streamlining exercise. And as one official commented r ''if we go through the list in a general streamlining exercise, item by item, we end up much below the Green line.~.112 3.3. The Soviet Union The F.~.G.'s disagreement with the U.S. over CoCom liberalization for Eastern Europe has been paralleled in the recent conflict over the extension of similar measures to the Soviet Union. At their February meeting in Paris, CoCom member countries discussed the dramatic changes that had taken place in 109 Cocom-Liste konnte Wahikampfthema warden,. E~D~1~5~. 3.29.1990. 110 Veriest i\\ In some areas e.g. telecommunications the Bonn proposal goes already beyond the China green line. i12 Interview; see also, ~Wirtschaftswoche- Technologieforum. Geanderte Fronten, n Wirtschaftswoche, 3.30.1990. 51

—-~— the Eastern bloc since the Fall of 1989.113 Yet despite the instrumental role the Soviet Union played in bringing about these dramatic changes, and despite the profound transformation the Soviet Union itself had already undergone and is continuing to experience, the U.S. insisted that this was not the time to engage in a streamlining process of the Cocom list that would include the Soviet Union.114 The U.S. d~d concede that with the withdrawal of Soviet troops from several Eastern European countries, an imminent threat to Western Europe was no longer present. U.S. government representatives insisted, however, that there was still a potential threat of Soviet aggression against the NATO alliance.~5 This potential military capability, they argued, makes it imprudent to undertake any basic change in Cocom's posture towards the Soviet Union. 113 "Die Cocom-Liste soil welter gekurzt warden, n Handelsblatt, 2. 17./18. 1990. 1~4 "Eine neue Exportpolitik gogen~ber Moskau," Frankfurter Alige~eine, 2.18.199D, "U.S., Allies Split on High-Tech Restrictions, I ;~.~=e9~58, 2.17.1990; administration officials indicated that an infulential group around Vice President Dan Quayle has been instrumental in maintaining this position, see "US-Reaktion auf Cocom Gespr~che. Washington furchtet Moskau noch als miklitarischen Gegner, n B.nd£~b~' 2.19.1990; see also "Keine Erisichterung for die Sowjetunion. die Cocom-Liste soil weiter gskurz~ warden,. E~d~lsbL~St, 2.19.1990. ii5 "U.S., Allies Split on High-Tech Restrictions," Washington Post, 2.17.1990. ii6 Washington fOrchtet Moskau noch als militBrischen Gegner," Handelsblatt, 2.17./18.1990. 52

This is not the position of the F.R.G.1l7 There exists a consensus among political leaders, government officials, the business community, and the general public that the threat of Soviet military intervention--which may have been valid in times of political and military confrontation--is simply no longer plausible.ll8 As one official stated, "of course we recognize the potential military power of the Soviet Union, but the real threat that emanates from this rotten, bankrupt system is that it may collapse and destroy everything achieved so far in this country: what the Soviets need is help and the more we help them, the more likely it is that the economic and political reform process will succeed''.1l9 Officials in the F.R.G. are increasingly confused by U.S. statements which acknowledge the positive changes that are taking place in the soviet Union, while refusing to actively support Gorbachev's reform efforts.l20 In fact, the Federal Republic does not see any justification for denying the Soviet Union in principal the same CoCom liberalizations granted to Eastern 137 n Bonn durchforstet die uberhohite Emhargo-Liste, n Handelsblatt, 2.3./4.1990; CDU/CSU, Fraktion im Deutschen Bundestag, Pressedienst, 1.23.1990 and 2.23.1990, p.2. In this context German officials have stressed repeatedly that the Soviet Union must not be excluded from the new Europe that is presently being built, see for example speech by Foreign Minister Hans- Dietrich Genscher at the meeting of the Western European Union, Luxembourg, March 23, 1990. 118 Interviews. i]9 Interview; see also "Union will Cocom-rockerung," Handelsbaltt, ~ . 27. /28 .1990 . 120 Interview. 53

Europe.121 West Germany feels that while the eventual core list might be somewhat larger and the items treated as general exceptions more numerous, the overall approach should be to differentiate as little as possible between the Eastern Europe and the-Soviet Union.122 From the P.R.G.'s perspective, numerous economic and political reasons exist in favor of treating the Soviet Union as an equal among the Eastern bloc countries when discussing the streamlining process of CoCom,l23 On the economic side, there is little doubt that the most critical--and yet most challenging-- task facing the Soviet leadership is that of domestic economic reform. This requires not only putting the Soviet Union on a path of sustainable long term economic growth; equally important is the generation of immediate and tangible economic benefits in order to arrest an already declining support base for Mikhail 121 Interviews; see also the statement by the economic speaker of the CDU/CSU parliamentary group Matthias Wissman in Bonn, 2.23.1990; statement by Peter Kittlemann, foreign policy speaker of the COU/CSU parliamentary group, CDU/CSU, Fraktion im Deutschen Bundestag,.Pressedienst, 1.23.1990; In particular such a differentiation complicates he reform process in the Soviet Union, Wissmann pointed out. This position is supported by most of the F.R.G.'s European partners especially France, see "Die Cocom-Liste sall weiter gekOrz~ werden,~ NandelstlaSt, 2.17./18.1990; ~Cocom-Liste soil gestuz~ warden," Ha~Isblatt, 2.14.1990. 122 Carola Kaps, "Cocom aus amerikanischer und Europaischer Sicht," Frankfurter Allgemeine, 3.14.1990; "Cocom-Verhandlungen in Paris brachten keinen Durchbruch,. D-r r~sc~n, 2.17.1990. . 123 Cocom-Liste kOnnte Wahlkampfthema werden,~ a~nd~lhL~t, 3.29.1990; ~Noch kein Durchbruch," U~i5~aLL, 4.4.1990; the F.R.G. is supported here by all West Europeans countries. S4

Gorbachev's overall reform program. A critical element of perestroika is to restructure the economy away from a system of "extensive growth'' based on increases in physical resource inputs towards a system of "intensive growth" that relies primarily on productivity increases generated in part through the use of modern technology.124 Thus, dual use technology plays a central role in the Soviet reform effort. As one respondent said, "if you want to modernize the civil side of the Soviet economy, you cannot insist on the security aspects of dual use technology".125 Of course, until economic decision making is decentralized, enterprises are freed from rigid production plans, and the scope for private sector business activity is expanded, imported high technology capital goods cannot be utilized to their full advantage.126 Yet while high technology imports undoubtedly 124 ReinhlOd Knapp, [ndustrie, Institut fur Strategische Grundlagenforschung and der Landesverteidigungsakademie, Wien, 1990. 125 Interview; see also "Washington will Cocom-Kontrollen lackern," Frankfurter Aligemeine Zeitung, 1.22.1990. 126 It is interesting that many respondents, especially in academic circles pointed out that they differ from U. S. interpretations of the success or failure of the Soviet reform ef fort. They considered Americans an being too impatient and expecting too much too quick from the reform. As one commentator described it, "Perestroika is a long term process rather than ~ short term solution . The dimens ions cuff economic aggregates to be moved, the complexity of legislation and organizational structures to be designed and implemented, the socio-political traditions and behavioral patterns to be changed are immense. It is therefore indispensible to develop realistic scenarios for a medium term perspective. Success of perestroika in this perspective must be seen in keeping the process of painful reform open . Fai lure on the other hand would be nothing more than the §5

cannot substitute for the required economic reforms in the Soviet Union, there is also little doubt that liberalizing the CoCom list would increase the possibility for the realization of those reforms.127 Under these circumstances, it would be a tragic anachronism if the Western pledges to help Gorbachev were belied by continuing Cocom restrictions.l28 The U.S. position that the introduction of modern technology especially in the area of telecommunications would make it more difficult to intercept communications in the Eastern is bloc rejected by the F.~.G. West Germany argues that CoCom was created to protect Western technology, not to make spying easier. In addition, as one official stated "it shows that for the U.S., the Cold War is still very much in existence. ttl29 Turning to the political perspective, the F.R.G. believes that the symbolic effect of isolating the Soviet Union and the fading of the momentum." i27Hans-Dieter Jacobsen, "Die Rolle der COCOM-Listen fur din sowjetische Wirtschaft und Gesellschaft," Osteuropa Wirtschaft, Vol.34, No.2 (1989), pp.93-117; "Westliche Technologie allein kann der Sowjetwirtschaft nicht helfen," Tagesspiegel, 7.19.1989; ''Umgestaltung der UdSSR?," ODIN, 4.15.1988; on the importance of technology in industrial development in the East, see Friedrich Le~cik, "Hauptrichtungen der Industriepolitik in fist und West," in Wiener Institut fur Internationale Wirtschaftsvergleiche, WIlW-Forschngsbericht, No. 126 . 128 Klaus Broichhausen, "Cocom wird den kalten Krieg uberieben, " Frankfurter Aligemeine, 2 . 13 . 1990; Cocom-Liste konnte Wahikampfthema werden, '' Handes] blatt, 3 . 29 . 1990; the continuation of CoCom restrictions would in f act support the command economy and work against the introduction of a market economy, see "COCOM : Probleme nach der Wiedervereinigung," Wirtschaftswoche, 4.E 129 Interviews S6

reform-oriented Soviet leaders through a continued application of CoCom restrictions would be politically destructive.130 Just as in Eastern Europe, this position is based on the fundamental belief that the primary task of Western governments is to strengthen the reformers in the Soviet Union in this period of economic and political instability. "Of course it is true that nobody really knows what might come after Gorbachev", one respondent said, "but isn't that precisely the reason why we have to first of all support the man as much as we can; and secondly create the socio-economic and political conditions in Soviet society that makes any return to Stalinism an impossibility.~131 The second part of this brief discussion on the Soviet Union addresses the implications for CoCom of East Germany's close economic links with the Soviet Union in the context of impending German unification.l32 Since the formation of the CMEA, all East European countries have developed extensive trading links with the Soviet Union, in terms of both volume and composition.l33 The G.D.R.'s trade relationship with the USSR is particularly 130 Interview. 131 Interview. 132 On the broader implications of German unification for Soviet German trade relations, see "vereintes Deutschiand wire grouter Wirtschaftspartner," Handelsblatt, 3.21.1990. i33 The links among the Eastern European countries are less developed, however. 57

close.134 In terms of volume, both economies are each other's most important trading partner. According to one statistic, the Soviet share in the total foreign trade of the G.D.R. was 37% in 1988.~35 Another recent estimate places the share at 30%,:36 From the Soviet perspective, the G.D.R. imported 10.7% of all Soviet exports and provided 10.8% of all Soviet imports. The structure of Soviet-G.D.~. trade is alto highly complementary. In 1989, 65.4% of the G.D.R.'s exports to the Soviet Union consisted of machinery, equipment and means of transport, which amounts to one fifth of all Soviet imports in this product category and makes the G.D.R. the major technology exporter to the Soviet Union.l37 The second most important group of exports (17.7%) are industrial consumer goods, which represent 14.5% of all Soviet imports in this category. (see Appendix A, Table 31. Meanwhile, the G.D.R. is highly dependent upon Soviet i34 Trade between the G.D.R. and the Soviet Union is conducted an the basis of five year trade agreements, yearly "trade protocols," and a multitude of of er bilateral trade and cooperative agreements between the two economies, interview with Dr. Frank Moller, Commercial Attache, Embassy of the German Democratic Republic, Washington, D.C. i35 Statistisches Handbuch der Deutschen Demokratischen Republik 1989, Berlin: Staatsveriag der Deutschen Demokratischen Republ~k, 1989, p.102. :36 Heinrich Machowski, Aussenwirtschaftliche Verflechtung zwischen der DDR und der UdSSR, Forschungsauf~rag des Bundesministeriums fur Wirtschaft, Berlin, April, 1990, here p.10. 137 In fact the G.D.R. is a major technology exporter to all Eastern European countries because of its comparatively high standard of technology. As one respondent said Atom a technology transfer perspective the G.D.R. has a turntable -unction in the CMEA. 58

energy and raw materials, importing 100% of its natural gas, 83.2% of oil imports, S3.6% of coal and 53.4% of its iron ore from the Soviet Union in 1988.138 Clearly, the Soviet and East German economies are closely interdependent; raw material and energy imports from the Soviet Union are an important element in the productive capacity of the G.D.~., while the machinery, machine tools, electronic equipment, and industrial consumer imports form an vital component of the industrial structure of the Soviet Union. With the impending unification, current East German exports to the Soviet Union will become F.R.G. exports. As a consequence, a number of goods that the G.D.R. currently exports to the Soviet Union (especially computers and machine tools) will automatically fall under Cocom restrictions. This situation will arise as early as July 2 if economic unification implies the extension of the AWG to East German territory, the interim solution discussed under 3.1.2. and favored by the F.R.G.139 The F.R.G. on many occasions stated that it will honor all G.D.R. commercial treaties with the Eastern bloc after unification.140 138 Machowski (1990), Table 8.; see also "Chance genutzt," Der Spiegel, No.9 (1990), pp.110-112. 139 For example an important share of Carl Zeiss Jena's optical instruments could not be delivered anymore and the survival chances of Robotron would be even less according to an official from that Kombinat, see "COCOM: Probleme nach der Wiedervereinigung,'' Wirtschaftswoche, 4.6.39gO. 140 Interviews; See for example "Cocom Pressures Bush On Technology Exports," Washington Post, 4.11.1990; "Amerongen: United Germany MUSE Meet GDR Trade Commitments,i' The Week in Germany, 3.30.1990, p.4. ''Moscow's Last Hope," New York Times, 59

As Foreign Minister Genscher recently asserted, "I will leave no doubt that the agreements East Germany has signed wily be honored. We do not want anyone to feel disadvantaged by German unity. We respect the Soviet expectations that its legitimate interests --in all their aspects, including security and economic interests-- are protected.''l4l This matter is also being discussed at the EC level since the maintainance of commercial treaties will require several transitional agrements with the EC. The Community in general is favorable to the idea of a continuation of the treaties: "it is important also to recognize that continuation of traditional trade flows has a role to play in maintaining good political and commercial relations with other Eastern European countries; ...it will be in the interest of the unified Germany that production which is geared to export to some East European countries should continue. The current pattern of trade between the German Democratic Republic and the Soviet Union, in particular is based mainly on imports of energy and raw materials from the Soviet Union and the exports of manufactured goods directed especially to the need of the Soviet market"142 In fact, the honoring of existing trade agreements should not 2.16.1990; obviously, one area where this commitment will not apply is for items that fall under the munitions list as defined by CoCom. 141 Speech by Foreign- Minister Genscher at the farewell dinner for Soviet ambassador, Yuli A. Kvitsinsky, May 8, 1990. 142 Commission of the European Communities, The Community and German Unification, 4.20.~990, SEC(90) 751 final, here p.7. 60

pose major problems, since the traded goods could be exempted from cocom restrictions by applying the foreign availability clause that allows Cocom member countries to export items on the list that have been proven to be available to the Eastern bloc through-third countries.143 A second issue that has to be addressed relates not to the immediate consequences of the economic union, but to the long term economic relationships between (East) Germany and the Soviet Union. Once unification has materialized, East Germany will be able to receive the most modern technology available in the West to reform its economic infrastructure and industrial base. As a result, many of the products produced by (East) Germany (machine tools, computers, optical instruments, etc.) will increase substantially in their technological sophistication. These products would then fall under Cocom restrictions, and could no longer be exported to the Soviet Union.144 In order to conform to CoCom regulations, two responses are available to (East)-Germany. The first one is to stop exporting all those goods that fall under CoCom, which would result in the violation of numerous treaties between (East)-Germany and the Soviet Union. Yet as mentioned above, both German states have 143 Realistically, since East Germany has ceased to exist as an independent state the foreign availability clause does not apply anymore. However, since these goods have been delivered for many years to the Soviet Union it is clear that these goods are now widely available in that country too. 144 Already a whole number of agreements have signed many of which are awaiting the clearance by CoCom. 61

reassured the Soviets that they will not engage in such a violation.145 Aside from these reassurances by the two Germanies, the Soviet Union has indicated itself how much importance it attaches to the continued close economic cooperation with (East)-Germany. East Germany provides a link for the Soviet Union to the entire EC market--and the Soviet Union certainly does not want to be cut off from this part of the European house. In a recent interview, the Soviet ambassador to East Germany stated that one important element in the new definition of Soviet security is the maintenance of East German trade treaties.~46 In addition, the Soviets made clear that the future economic relationship between (East)-Germany and the Soviet Union will have a significant influence on the Soviet position in the upcoming two plus four talks. Given these circumstances, it is unlikely that the two Germanies would stop exporting the goods in question to the Soviet Union. The second option for (East)-Germany would be continue to manufacture and export technologically outdated goods that would 14S For the G.D.R. see for example the inaugural adddress by the new prime minister' policy For Our People -- Democratic -- Resolut --Prudent, n 44 . 19. 1990. In fact during a visit of the new East-German government to Moscow on April 21, the new GDR economics minister Pohl expressed great interest by East Germany to further extend and deepen the economic links between the two countries. Similarly, during the annual Leipzig fair earlier this spring a whole series of new cooperative agreements between the Soviet Union and the GDR were arranged, including a new joint venture between Robotron and a Soviet manufacturer to develop computers. 146 Interview by Hans Dieter Machowski, Deutsches Institut fur Wirtschaft, West-Berlin; this indicates the importance of these contracts to the Soviet economy. 62

conform to CoCom guidelines. But this option would require (East)-German companies to maintain two separate production lines characterized by two different standards of technology. Private sector respondents argued that such a scenario is unacceptable. Many of-the companies that export to the Soviet Union are relatively small and highly specialized; they could not afford to run two separate production facilities, nor cover the costs for maintaining dual service and maintenance facilities.147 In fact, if the U.S. proposition would be adopted to differentiate between the Soviet Union and the rest of Eastern Europe, it would require multiple production and service standards . Moreover, the impending gradual liberalization of the Cocom ~ ist would require companies to continuous ly update their facilities to match CoCom's permitted technological standards, which would prove much too costly.l48 As a consequence, many planned investments in East-German and joint ventures between East-German and Western corporations would not take place as the access to East-Germany's most important market would be closed. 147 There are many West-German machine tool manufacturers that would like but cannot afford to run dual production lines. However, in some cases the Soviets might insist to receive in the short term some of the older technology as their factories cannot adjust so quickly to the new technology. Whether such a production would be subsidized by the F.R.G. government remains open. 148 The F.R.G. cannot accept to subsidize the continued production of these goods in order to honor the commercial treaties with the Soviet Union ens thus allow companies to maintain multiple production lines. As discussed previously, such a solution has been rejected as too costly and politically unfeasible under the present circumstances. 63

This would have similar repercussions on economic unification as the continued application of CoCom regulations to G.D.R. territory discussed above. In addition to these private sector cost considerations, it is important to remember that the Soviet Union is the G3R's most important export market. It will not be easy to find alternative markets for these exports. Many of the Western high-tech goods markets are already crowded, and it would be very difficult for East Germany to create a niche sufficiently large to compensate for the losses in the Soviet market. Besides, it is not necessarily in the interest of the other EC members to have their markets flooded with new products from a revitalized East-German economy.149 A further motivation for maintaining the flow of (East) German exports to the Soviet Union is that a breakdown in this flow would have severe repercussions upon the East German employment level. Currently, 480.000 people are employed in the export sector that produces for the Soviet Union.l50 This amounts to 20% of the entire workforce in the industrial ~ . sectOr.15~ 149 TO the contrary the EC hopes that the opening of markets in Eastern Europe will allow the F.R.G. to divert some of its exports to Eastern Europe and the Soviet Union and reduce the F.R.G.'s overall B.o.P. surplus that exists with almost all of its partner countries. 150 See Machowski (19901. lS1 In 1988 the workforce employed in the industrial sector was 2. 4 million. see Statistical Pocket Book of the GOR, 1989, here pp.34-35. In some cases this ratio is even higher. For example the industrial Kombinat Robotron that manufactures computers and other electronic equipment exports 80% of its goods 64

As a consequence of all these political and economic considerations, it is clear that neither option discussed above provides a realistic solution to the problem of (East) German exports to the Soviet Union. As an alternative to these options, the F.R.G. has suggested extensive liberalization of the Cocom industrial list for the Soviet Union, along with measures to ensure that the technology that is exported is applied to its proscribed use.l52 In other words, rather than establishing a new regime that not only continues to be based on technology denial but also develops complicated mechanisms of differentiation among the various Eastern bloc countries, the F.R.G. advocates a regime based on safeguards in the form of end use certificates and on site inspection.l53 Officials in Bonn argue that this system should satisfy those that continue to be concerned about the Soviet military capability, as well as those who wish to support the process of economic reform in the Soviet Union. The Soviet Union has reacted positively to such a plan, and to the Soviet Union. 152 Interview 153 This has also been recommended by the WEU. The recommendation calls for "negotiations with the Soviet bloc for the introduction of on-site verification procedures to accompany all future sales of western strategic technology where appropriate in return for the further liberalization of the Cocom list," see West European Union, Co-Oridinating Committee For Multilateral Export Controls {COCOM), Report submitted on behalf of the Committee on Scientific, Technological ens Aerospace Questions by Mr. Atkinson, Rapporteur, A/WEU/STA ~ 89 ~ 3, Paris, 1989. 65

has offered on numerous occasions to establish a system of safeguards. In November 1989, deputy minister president Abalkin, during a visit to the EC proposed the establishment of a system of export safeguards to ensure that dual use technology will be utilized only for civilian purposes.l54 This offer was repeated by Foreign Minister Eduard Schewardnaze during a visit to Belgium in December 1989.155 More recently, Vice Premier Stepan Sitar jan reiterated the Soviet offer to allow Western officers to control the end use of dual use technology in the Soviet Union.l56 The F.R.G. argues that such offers by the Soviet Union must be taken seriously. As one respondent stated, "You can't refuse to talk them and you can't deny the worthiness of an international agreement. After all, the superpowers trust each other in disarmament talks and conclude agreements on nuclear weapons.~157 As to exact nature of the regime, one respondent suggested that it could be based on or even embedded in the verification scheme currently negotiated in Geneva or Vienna. "If you find an agreement for the verification of missile launchers and silos it must be possible to do the same thing for machine 154 "UdSSR will eine Alternative zu Cocom," Nachrichten fur Aussenhandel, 11.24.89. 155 nAussenwirtschaftsbezishungen der UdSSR," ECOTASS, 4.9.1990. 156 "Osthandel: Kampf dem CoCom," Der Spiegel t 4.16.1990; "Moscow Seeks New Technology Export Rules," Journal of Commerce, 4.11.1990. 157 Interview. 66

tools and computers," he said.158 Others suggested that the private sector should have a role in such a regime. Their technical expertise would be indispensible in safeguarding the proper application of high technology. One area where a safeguard regime is indispensible, is for the export of those items on the atomic energy list that enhance the safety of nuclear reactors. As the Chernobyl accident demonstrated, Western Europe is vulnerable to nuclear accidents in the Soviet Union, and thus has a great interest in improving the safety standards of Soviet nuclear reactors. The economic spokesman of the COU/CSU parliamentary group stated that "especially in the areas of the environment and reactor safety a liberalization is necessary to solve t the Soviet Union's] pressing problems. It is of little use if reactor safety is improved only in Hungary and Czechoslovakia but not in the USSR.~159 Before concluding, a further consideration which has influenced the West German government's perspective on the issue 158 Interviews 159 See Statement by the economic spokesman of the CDU/CSU parliamentary group, Matthias Wissmann, 1.21.1990, 7842h; "COU/CSU begruBt COCOM-Erieichterungen," Deutschiand-Union- Dienst, Vol.44, No.39 (2.23.90), p.4; in fact the F.R.G. and the Soviet Union have already established close cooperation in the filed of nuclear energy and safety. For example, during his last visit to Moscow in October of 1988, Chancellor Kohl and President Gorbatchev signed an agreement to deliver nuclear safety surveillance equipment and to train specialists that can handle this equipment. During that same visit the West German company Siemens and the Swiss/Swedish company Asea Brown Boveri signed a contract to built a high temperature reactor in the Soviet Union. ~7

of CoCom has been the pressure from the opposition and the business community. This pressure has both reinforced the preexisting inclination to liberalize CoCom and has given the government little room to maneuver in negotiating with the U.S. in CoCom. Turning first to the opposition, the Social Democrats have demanded the unilateral exit of the F.R e G. from Cocom unless rapid and decisive action is taken by the government.l60 As one official stated, "It is time that we forget Cocom''.16l However, this does not mean that the F.R.G. would stop administering export controls. Rather the SPD supports a bilateral approach to export controls. To support their demands the party has long demanded a full review and substantial tightening of the West German foreign trade law. The reason for the SPD's position does not so much derive from differences in their position towards the Eastern bloc. To the contrary as mentioned previously their is a considerable agreement among all political parties on the need to support the Eastern European and Soviet economies.162 Rather the SPD does 160 "Hilfen fur die DDR erforctern tief~reifencle COCOM- Revisionen," Die SPD im Bundestag, 1.30.1990; "Erneuerung der ODR-Wirtschaft: Die COCOM-Liste muB weg," Die SPD im Deutschen Bundestag, 2.~.1990. 161 "'Radikal' gegen Cocom-Liste vorgehen," VWD, 2.1.199O 162 t'Debatte im Bundestag dokumentiert Konsens der Parteien. Initiative zur Kurzang der CoCom-Liste," Handlesblatt, 12.18.1989. For various reasons this might not always be expressed in public but the interviews also ref lected this . For a public ctebate that reflects some broader differences see for example Deutscher Bundestag, 186. Sitzung, Ost-West-Hancie] mit Hochtechnc>logiegutern, 12 . 15.1989, Plenarprotokoll 11/186 . 68

not believe that the CoCom, given its internal operational structure can respond fast enough and that the U.S. does not want to respond fast enough to the current situation in the Eastern bloc.163 As one parliamentarian said "according to the US it would like to replace the Iron curtain with a CoCom curtaintl.164 Some respondents suggested that the Social Democrats "had to advocate such a position as an opposition party"; if in power they would not support such a drastic position.''165 This is supported by the fact that a recent motion for a resolution that the party introduced into parliament does not contain the demand for unilateral exit.166 Finally, the SPD has also repeatedly drawn attention to the losses that have accrued to German industry and has publicly encouraged the private sector to disregard Cocom with respect to dual use technology if no progress were to be made at the Paris meeting in February.167 But the Social Democrats were not the only party that demanded more drastic action. The Greens too have demanded to 163 Interviews; "Differenzen um Abbau der Cocom-Kontrolle", Handelsblatt, 3.23.1990. 164 Joseph Vosen, DDR und COCOM, 1.29.1990. 165 Interviews. 166See EntschlieBungsantrag der Fraktion der SPD, Ost-West- Handel Wit Hochtechnologiegutern t Deutscher Bundestag' 11. Wahiperiode, Drucksache ll/6085, 12.13.1989. 167 ''Milliarden-Auf~rage durch Cocom behindert," E~3n8LYEter Aligemeine, 12.16.1989; "SPD veriangt eine vollige Neufassung der Cocom-Liste," Die Welt, 2.2.1990. 69

cut the dual use list.l68 Finally, even the CDU's coalition partner, the Free Democrats (FDP) are not satisfied with the slow progress currently under way. As one member of the FDP's parliamentary group stated "I expect from the government that it continues to work with increased vigor towards a substantial reduction in the Cocom regulations; the mere preparation of initiatives in not enough.~169 Turning to the private sector, it has been known for a long time that German industry just like the West German government has always supported the central purpose of CoCom. At the same it time resented both the extent of export controls in the dual use area as well as the cumbersome administrative structure of CoCom.170 In general, however, the business community has avoided to speak up in public against CoCom or the U.S. Many executives fear the possible repercussions of their actions which might result in the loss of lucrative export markets or access to indispensable technology from the U.S. With the changes in the Eastern bloc this acquiescence has ended. Industry officials and industrial organizations are now '~. "Okologisches Europa im Thick", Frankfurter Rundschau, 3.22.1990. 169 "Laermann: Cocom-Vorschriften behindern Zusammenarbeit,i' FOP, tagesdienst, No.273, 2.28.1990. 170 In 1988, the Institut der Deutschen Wirtschaft a research institution with close ties to the Federation of German Industry called the CoCom list "inexpedient, not up to date, and unfair'', see "Export-Hurden im Osthandel," iwd, Informationsdienst des Instituts der deutschen Wirtschaft, N0.14, 4.7.1988, p.3. 70

calling publicly for a drastic reduction of the industrial list and the total overhaul of the CoCom concept --but not its abolition.l7l For example the Central Federation of the Electronic Industry has issued a seven point position paper on Cocom which calls for a shortening of the lists which must include a review of all items on the industrial list and should lead to the elimination of "numerous items"; it also rejects a differentiation among the Warsaw Pact countries. "Equal treatment of target countries on a substantially lower level" has become possible the paper argues, because of the lessened tension in East West relations as well the reorientation of the defense industry in the target countries.172 Similarly, during a recent international trade fair the ind ustry assoc i ation for the electronic, chemical, and machine tool industries all demanded a drastically reduced CoCom list.173 Many in the private sector agreed that the longer the current system stays in operation in light of the changes in the Eastern bloc, the more likely it is that CoCom will be considered an instrument of commercial policy 171 See for example "Cocom-Arger," Wirtschaftswoche, 3.16.1990; "Wirtschaftswoche-Technologieforum--Geanderte Fronten,i' Wirtschaftswoche, 3.30.1990; see also the comments by Hans-~laf Henkel, head of IBM Europe in, "Neue Chancen im Osten," Frankfurter Aligemeine, 3.20.1990. 172 ZVEI-Positionspapier zur COCOM-Politik, 2 .13. 1990 ; "ZVEI fordert zugige COCOM Reform," Z9EI Mitteilungen, No.4 (1990~. 173 "Rasche Lockerug der Cocom-Ausfuhrbeschrankungen gefordert," Frankfurter Aligemeine, 3.21.1990; "Warum das Tauwetter einige Cocom Anhanger frostein laBt," Frankfurter Rundschau, 6.10.1989. 71

and not as a measure that enhances national security.174 The private sector is also exerting increased pressure on the government to act more determined on behalf of West German industry. As one official in Bonn stated, "we get letters from the industry which lead to the conclusion that if there are no rapid changes --I mean fundamental changes-- Lin CoCom3, a situation will develop where we can no longer defend CoCom.''l75 Another official put it even stronger "from a domestic policy perspective it must be stated very clearly that the acceptance level of both industry and the public with regard to U.S. attitudes and interpretations of the current Eastern reform efforts is falling rapidly and is approaching the point where the United States has to begin to think about balancing their own strategic concerns with the aim to maintain the very institution [CoCom3 itselfl~l76 3.4. Summary To sum up, this section has outlined the F.R.G.'s perspective on the changes needed to adapt Cocom to the political and economic transformations currently occurring in the Eastern bloc. In general terms, the F.R.G.'s perspective is based upon the conviction that the U.S. cannot consider this review of Cocom i74 "Cocom -- ein Relikt des kalten Krieges zwischen 0st und Westt', Frankfurter Rundschau, 11.29.1989. 175 Interview. 176 Interview. 72

as "yet another set of technical arguments by bureaucrats over parameter specifications for computers and machine tools.''177 Rather, the current revisions of CoCom require that the member countries commit themselves to political decisions that reflect the end of the cold war and the beginning transformation of the post War European economic and security order. More specifically, the West German perspective reflects a combination of three factors that have been discussed above: a) the reform efforts currently underway in the East vindicate the traditional West German approach to East-West relations, in which economic cooperation is seen as a means to improve relations between the two blocs. According to the West Germans, the degree of CoCom liberalization is thus not only a function of the political and economic reforms already achieved. To the contrary, liberalization should be part of a broad strategy to further encourage the process of economic and political reform in Eastern Europe and in the Soviet Union, and to strengthen international stability and security; b) the "structural realities" of the impending unification of the two Germanies limit the range of policy responses which could be undertaken without undermining both the unification process and the progress of economic and political renewal in Eastern Europe and the Soviet Union; and c) strong political pressure by both the opposition as well as the private sector which has strengthened the preexisting 177 Interview ~3

policy position to streamline CoCom and has given the authorities little freedom in negotiating with the U. S . in CoCom. 74