The pipeline quagmire

By lowering the boom on Dresser-France, and threatening other European licensees and subsidiaries of American firms with similar retaliation for violating the Commerce Department's June 18 embargo on sales of equipment for the 3,600-mile Soviet pipeline to Western Europe, President Reagan has precipitated a crisis of major proportions with our European partners and torn a hole in the alliance.

The Aug. 26 ban on United States exports to the Dresser Industries' subsidiary in France and its French firm Creusot-Loire is being trumpeted by the White House as evidence of the President's determination to penalize the Soviet Union for martial law in Poland.

But the sanctions are directed against industrial companies of the United States and its allies - not against the Soviet Union. The only victims of the administration's wild - and illegal - flailings at European companies for fulfilling their contracts are within the NATO family.

The administration's first mistake was to extend to foreign licensees and subsidiaries an earlier embargo on sales of equipment from the US without checking the law. Efforts to impose US law overseas - in antitrust, shipping, economic regulation - have had a long prior history of confrontation, and an equally long record of failure. They have also provoked legislation and decrees by our major trading partners to protect their nationals from external edicts. As regards sanctions, a US attempt in the '60s to stop the French subsidiary of Fruehauf from shipping truck assemblies to mainland China met with precisely the same response as in the Dresser case - action by the French government to force compliance with the contracts.

In its ideological zeal, this administration has lost touch with reality. By every standard of international law the targets of the June 18 embargo are foreign companies and outside the scope of US jurisdiction. To the foreign governments concerned, any effort by the US to dictate to them and make them default on their contracts is an infringement of national sovereignty.

Prime Minister Thatcher of Britain, Chancellor Schmidt of West Germany, President Mitterrand of France, and Premier Spa-dolini of Italy have expressed their determination to proceed with the pipeline contracts, and are now following up with deeds. They have no alternative - the contracts were signed months ago and not only major companies like John Brown of Clydeside, AEG-Kanis and Nuovo Pignone, but hundreds of subcontractors are relying on the orders.

The Europeans had no desire for this confrontation. It was President Reagan who by forcing the issue with the foreign subsidiaries and licensees got allied governments involved. To protect these companies and the American parent entities as well, the British government invoked its Protection of Trading Interests Act, the French government ordered Dresser-France and Creusot to perform, and Chancellor Schmidt has formally requested German firms to do the same. Instead of accepting the new situation, President Reagan in frustration has fallen back on a campaign of retaliation.

With little prospect of invoking criminal penalties against the companies concerned - the subsidiaries and licensees can plead force majeure, and Dresser-Houston is in compliance by issuing the necessary instructions to Dresser-France - the administration is now trying to blacklist the violators. But, according to the Department of Commerce, a total of 7 subsidiaries and 13 licensees of American firms are involved in the $10 billion deal. If all get equal treatment - as they must if penalties against one are to stand up - the Reagan administration will soon be embroiled in a nasty international trade vendetta. With the prestige of governments now on the line, the shipment of the turbines and other equipment to the Soviet Union would be absolutely guaranteed.

With President Reagan too deep in the quagmire to retreat, his aides are gambling that retaliatory action against the offending companies within the US can be made to stick, or at least to prop up his image at home regardless of the political cost abroad. Is this the way to conduct a foreign policy?

The one person in the administration who presumably understands the full implications of this fiasco is Secretary of State Shultz who, alas, came in late. He should persuade the President to lift this illegal and unenforceable embargo, which has only the remotest linkage to internal events in Poland, before irreparable harm is done to the alliance. Failing this, perhaps he can at least get the embargo thrown into the courts along with the blacklisting measures - with both suspended until the courts determine their legality.