In the City
Through the pipeline
Tony Rudd
The rift between America and her European allies over the Russian gas pipeline is serious not only because it is such a clear and open case of disagreement but also because of its implication for future divergence of policy. The economic going in the engineering industry in Western Europe is extremely tough, the business that can be gleaned from the other side of the Iron Curtain is more than ever valuable. Conversely the cost of passing it up in the cause of fighting an economic war against Russia is more than ever unacceptable.
The way that the pipeline incident arose was itself calculated to rub up all concerned the wrong way. The planning for the pipeline and the taking of orders for it goes back several years. Doing the design and development work, planning the manufac- ture, assembling the components and put- ting the whole thing together has equally taken time and effort. Dozens of firms have been involved. It amounts to a whole in- tegrated project. Stopping it at this stage is like putting the machinery of the QE2 into reverse from full speed ahead. The disrup- tion is colossal. Furthermore, the contrac- tual position of businesses caught up in such an attempted reversal is extremely precarious. On the one hand they owe a du- ty to their customers; on the other they have suddenly been put in the position of break- ing agreement with their licensees. Either way they are losers.
No wonder that the Prime Minister herself has thought fit to intervene in the matter and to emphasise that having entered into a bargain it is the United Kingdom's habit to fulfil the obligation. To John Brown, the firm that is most directly in the front line, the Prime Minister's sup- port must be especially welcome. They are caught because the machines which they have been manufacturing are of an American design and incorporate a par- ticular part, or sub-assembly — the rotor
blades and mounting — which is actually manufactured in the United States. The reason for this is not so much because the technology involved is beyond British in- genuity but so that the performance of the compressors should be absolutely standard, irrespective of who makes the rest of the product. Thus, by having this central part of the machine produced by one manufac- turer and fitted to all compressors made by GE's. licensees, the product will invariably be up to a standard specification. This is the logic of the arrangement. But, of course, it has lent itself to this sudden interference from America. By preVenting the export of necessary parts the American authorities can effectively prevent the manufacture of complete compressors, at least to this design.
Clearly this particular incident has been escalated to the point where some form of compromise may emerge. Let us hope so. But with President Reagan and some of his advisers in their present mood it is obvious that we can expect further trouble of this kind in the months to come. Guerrilla tac- tics such as those we have just seen are bound to make proper future planning of such large-scale work such as the Russian pipeline extremely precarious; what may seem acceptable today may turn out to be totally wrong tomorrow. That is why it is important that Western Europe should make up its mind clearly as to whether it is going to give in to American pressure and in effect allow the Administration to dictate what can or cannot be done by way of East/West trade or whether the issue must be fought out so that in future when con- tracts are negotiated suppliers can rest assured that they will not be the subject of subsequent guerrilla tactics. What is unac- ceptable is a death of a thousand cuts.
In facing up to this choice we can take comfort from the fact that the Administra- tion's tough line is not wholly popular in
the United States. It may go down well at meetings of Veterans' associations. But with business, particularly in the areas recently affected by the embargo decision, it is far less acceptable. A company like Caterpillar, based in Peoria, Illinois, an area where industrial conditions are far from easy, would have welcomed orders for pipeline-laying machinery. But the issue is wider than this. International trade in the engineering and construction industries fre- quently depends these days on close mutual cooperation between leading companies around the world. They are inter connected. We have seen this in the oil in- dustry. It can lead to situations where na- tional governments get very annoyed at their policies being thwarted, as they see it, by these international loyalties and ar- rangements which appear at a time almost unpatriotic in their effect. Yet every time governments do try and interfere they end up by harming the delicate apparatus upon which the international movement of goods and services these days depends. Throwing us further into the works as the Americans have just done over the Russian pipeline is a typical example of national government try- ing to interfere with the normal course of international business. If we were now in the middle of good economic times perhaps the prospect Of some sacrifice being incurred as a result of foreign policy-makers putting sand in the gear box could be tolerated. But the world is in the middle of a fairly desperate reces- sion. Every order counts. In some cases a substantial one can be the difference bet- ween survival or extinction. This is where President Reagan's ultimate argument, justifying his action, may be specifically at fault. The reasoning behind interfering with the Russian pipeline is that if it is not com- pleted the Russians won't be able to earn the foreign exchange they need, which will bring them one step nearer economic col- lapse. The problem is that it will also bring us one step nearer economic collapse. Which step is the bigger is a matter for argument. Furthermore, the greatest im- pact in the world will be on Western Europe, not on America (despite the dif- ficulties of the Caterpillar company). So, in economic terms we have a situation where the Americans would be fighting the Rus- sians at the expense of the unemployed this side of the Atlantic. What makes this ine- quality of sacrifice pretty irksome is the prospect of American grain sales to Russia which are to carry on as normal.
At times the West has undoubtedly done itself harm by the sale of technology to Russia. Selling jet engines to them im- mediately after the war was one of the worst cases. There is probably still an argument for keeping a careful check on what we sell when it is in the category of really advanced technology but when it is not there seems little reason for interfering with particular sales equipment; either we trade with Russia and the eastern European countries or we don't. If we do then let everybody get on with it.
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