Foreign Relations of the United States, 1981–1988, Volume X, Eastern Europe

326. Telegram From Secretary of State Shultz to the Department of State¹

Secto 28082.

Budapest, December 16, 1985, 2257Z

SUBJECT

• Secretary’s Meeting With Hungarian Foreign Minister Varkonyi, December 16, 1985.

1. S—Entire text.

2. Summary: Both the Secretary and Varkonyi described bilateral relations as good, with room for expansion particularly in the area of trade and cultural relations. Varkonyi enumerated a number of Hungarian desiderata, including multiyear MFN, GSP, more U.S. direct investment, and the opening of a second consulate. Exhibiting sensitivity to possible Soviet criticism, Varkonyi said that U.S. media suggestions that the U.S. hoped to wean Hungary more toward the West were unhelpful. He affirmed that Hungary sought a good relationship with the U.S. within the framework of its Warsaw Pact alliance. The Secretary and Varkonyi also exchanged views on the world economy and political perspectives in he light of the Geneva meeting. The Secretary noted that the “information revolution” will favor more open societies, prompting Varkonyi to complain that COCOM restrictions on technology transfer were needlessly severe. The Secretary responded that this points to the need to create a more stable East-West situation. End summary.

3. In addition to the Secretary, U.S. participants in the meeting included Ambassador Salgo, Counselor Derwinski, Assistant Secretaries Ridgway and Kalb, S/P Director Rodman, DAS Palmer, NSC member Dobriansky, and EUR/EE Director Kuchel. Other Hungarian participants included Deputy Foreign Minister Esztergaylos, Hungarian Ambassador Hazi, Directorate V Head Horvath, Press Director Szabo, U.S. Desk Chief Banlaki, and Varkonyi’s special assistant Erdos.

Bilateral Relations

4. Varkonyi welcomed the Secretary, recalling that his was the first official visit of a U.S. Secretary of State since Rogers visited Hungary in 1972² although Vance had come in 1978 heading the delegation returning the Crown of St. Stephen.³ The Secretary began with a brief outline of the bilateral relationship from U.S. perspective. He described it as good with room for expansion, particularly in the areas of trade and cultural relations. He foresaw no problems in the annual MFN review for Hungary. He noted that Ambassador Salgo had been active in encouraging closer relations.

5. In reply, Varkonyi agreed with the Secretary’s overall assessment. There are no outstanding problems, but he registered the following “concerns:”

— In order to assist long term commercial planning, Hungary would like to be accorded MFN on a three to five year basis rather than annual review. The GOH understood present constraints and was not “pushing,” but it would be good to move to multiyear MFN by 1988, the 10th anniversary of Hungary’s MFN status.

— The GOH appreciated its “good diplomatic exchanges” with the U.S., but sensitive issues such as terrorism and espionage (Comment: Travel restriction warnings) might be dealt with more effectively if the U.S. conveyed its concerns informally rather than in the form of nonpapers.

— Speculation, particularly in the U.S. media, that the U.S. hoped to move Hungary away from its Soviet alliance partners by such activities such as the Secretary’s visit creates “a bad sign” after the Geneva Summit. Varkonyi affirmed that Hungary sought a good relationship with the U.S. within the framework of its WP alliance and CEMA membership.

— Concerning the economy, Varkonyi noted the need for increased exports to the West to pay its Western creditors. 1985 results were not all that good, in part due to systemic weaknesses and in part to the severe 84/85 winter. The 1986–1990 five year plan will stress export growth and debt servicing over investment. Hungary would therefore welcome greater U.S. investment. A new foreign investment law is to take effect January 1 as a further inducement.

— Hungary will be applying for GSP benefits. It hopes the U.S. response will be favorable.

— The GOH would like to open a second U.S. consulate in either San Francisco or Los Angeles (the 1972 consular agreement⁴ provides for the opening of two consulates, but the projected post in Cleveland was never opened). Varkonyi hoped the U.S would consider the request.

— Hungary had solved all its U.S. family reunification cases. Varkonyi claimed, however, that the Hungarians have four “divided family” cases with the U.S. that remained unresolved. (Comment: MFA Director Horvath later presented a list of four cases involving custody and support of minors).⁵

Economic Outlook

6. The Secretary provided Varkonyi with a detailed assessment of the global economic outlook. He described the world economy as coming out of a recession, expanding more rapidly in some places (SE Asia) than others. The U.S. economy had just undergone a breathtaking expansion in jobs and remains strong. A few days ago, Kohl had described to him the upturn in the German economy.⁶ Japan is also strong. There were imbalances, however, centering on the size of the U.S. trade deficit, the large Latin American debt, protectionist pressures increasingly felt around the world. He outlined the “Baker” plan and U.S. support for a new GATT round to keep world trade open.

Political Issues

7. The Secretary took the opportunity to outline U.S. objectives in seeking a more stable relationship with the USSR. Achieving this would have a beneficial impact in East-West relations generally, but also in relations with China. The U.S. is particularly concerned, the Secretary said, over potentially explosive regional conflicts. These included Afghanistan, Cambodia, Nicaragua, the Mid-East and the Iran-Iraq conflict. While it is not desirable to inject U.S.-Soviet rivalry in these regional conflicts, it is present in many. While arms control remained the centerpiece for U.S.-Soviet negotiations, reaching understandings on regional conflicts and improved observance of the Helsinki Final Act were of great importance.

8. Describing the Geneva meeting, the Secretary stressed the personal manner in which the President conducted the direct and substantive exchanges with Gorbachev in both private and plenary sessions. The U.S. wants to place Soviet relations on a more constructive footing. We are realistic, however, in our approach and expectations. It was gratifying that both sides were willing to state jointly important positions in the joint statement.⁷ We hope to move forward with both energy and care. We must not try to go so rapidly so as to stumble, the Secretary concluded.

9. In response, Varkonyi said that at Prague, Gorbachev had also stressed the importance of both sides declaring that war is unthinkable. He pointed to the emphasis in the last WP communique on the importance of finding a new approach to solve world issues. Varkonyi noted that in any negotiation, mistrust is created if one side claims it had bested the other. He recalled Kadar’s comment after the 1975 signing of the Helsinki Final Act to the effect that “there were no losers and no victors; everyone came out a winner.” The Geneva meeting should be looked at that way. The Secretary agreed. The press may sometimes look for winners, but in reality both sides won.

The Information Age

10. The Secretary said he wanted to conclude by commenting on an important development that was not ideological but technical and scientific. The industrial age was ending, and we are now entering what may be called the “information age.” The technical revolution affects how things are organized, done and how we work. It is a challenge to management, the Secretary thought, that will favor societies capable of greater openness.

11. Varkonyi said that Hungarians were also thinking very deeply about the implications of the technical revolution. We are conscious of the need to keep up with the world, he said. In this respect, he recalled his reply to Genscher recently when the latter had stressed the importance of participating in SDI to access its technology. Varkonyi said he had told Genscher that an Iron Curtain had once divided Europe. “You shouldn’t now erect a ‘technological curtain’ to divide Europe.” Should that happen, Varkonyi said, a part of Europe will again be divided off and insecure. Professing understanding of the need to protect military technology, Varkonyi complained that COCOM controls were needlessly far-reaching. As an example, he said the U.S. Embassy had complained because some of its personnel had no telephones in their homes, threatening reciprocal removal of telephone service from Hungarian Embassy residences in Washington. Budapest needed a new phone system, but its request to purchase a new system from ITT or Erikson had been turned down under COCOM. We should think about the human implications of technology transfer controls, Varkonyi concluded. The Secretary responded by noting that this emphasizes the need to create a more stable East-West situation. He recalled for Varkonyi that one of the less noted outcomes of the Geneva meeting was the accord to work jointly on nuclear fusion, a very technological proposition. Varkonyi agreed that such projects are challenges that must be welcomed. End text.

Shultz

1. Source: Reagan Library, Paula J. Dobriansky Files, Secretary State Visit to E. Europe (1). Secret; Immediate; Exdis. Shultz was in Budapest from December 15 until December 17.
2. July 6–7, 1972. See Foreign Relations, 1969–1976, vol. XXIX, Eastern Europe; Eastern Mediterranean, 1969–1972, Documents 127–128.
3. January 7, 1978. See Foreign Relations, 1977–1980, vol. XX, Eastern Europe, Document 162.
4. The agreement was signed on July 7, 1972. (24 UST 1141)
5. Not found.
6. Shultz was in Bonn December 13–14.
7. Issued in Geneva on November 21. See Public Papers: Reagan, 1985, Book II, pp. 1401–1410. See also Foreign Relations, 1981–1988, vol. I, Foundations of Foreign Policy, Document 256.