Reagan Criticizes Allies’ Libya Trade : Raises Moral Issue in Sanctions Call, Admits Choices Limited on Reprisal

President Reagan, drawing attention to the European allies’ reluctance to support his effort to place Libya in economic isolation, suggested in remarks made public Saturday that nations continuing to deal with Libya are placing trade above morality.

At the same time, the President conceded that despite his frequent vows to punish terrorists and their supporters, he has few choices available in response to what the Administration asserts was Libyan support for the terrorists who attacked passengers at airports in Rome and Vienna last month.

And he raised the possibility that ordering Americans in Libya to leave that nation would free the United States for future military action against the regime of Libyan leader Moammar Kadafi.

‘A Little Defenseless’

Referring to the estimated 1,000 to 1,500 Americans whom he told to leave Libya, Reagan said: “We were a little defenseless with regard to taking actions in response to this terrorism while so many of our citizens were there and potential hostages. So, we felt that we should untie our hands with regard to whatever action might be necessary in the future.”

Using a 25-minute interview Friday with a group of European journalists to present his anti-Libyan views to leaders and others in the West, the President acknowledged that European trade with Libya is greater than that of the United States.

“But I have to say that I think there is a moral issue involved here with regard to a sovereign state that is so obviously resorting to terrorism, literally against the world,” he said, according to a transcript made available by the White House.

Referring to the attacks that took the lives of 19 people--including five Americans and four of the terrorists--at the two airports, Reagan asked:

“Can we place trade, everyday relationships, ahead in value of the immorality that is inherent in people who will come in, as they did, into an airport and just simply shoot human beings that were there--men, women, children--with no regard to what participation those people have in anything that’s going on?”

Ties With Europe

Still, the President said, the United States’ ties with its European allies are “too strong” to be threatened by differences over Libya. And, he said, despite Arab support for Libya, he has seen no sign that Washington’s relations with its Arab allies are faltering.

The head of the State Department’s counterterrorism office, Robert B. Oakley, said Saturday that some Arab nations, while publicly supporting Kadafi, are telling the United States privately that he is “a terrible embarrassment.”

Extension Possible

In recent days, Oakley has raised the possibility that sanctions could be extended to Syria, if that Middle East nation is linked to future violence by the Abu Nidal Palestinian group, which has been blamed for the airport attacks.

On Saturday, in an interview on the Cable News Network, the State Department official suggested that if Kadafi’s support for terrorists continues, the Administration might warn Americans that travel to Western Europe is unsafe.

Although Oakley refused to tie American tourism in Europe to European support for the President’s policy, his warning that tourism could suffer unless terrorism is checked could be construed as gentle pressure on the allies.

Oakley compared those who ignore what the Administration has called evidence of Libyan support for terrorism with “those who chose to ignore what Hitler was doing before the Second World War.”

Reagan’s program to halt Western trade with Libya was unveiled Tuesday evening but ran immediately into a lack of support among those most vital to its success.

However, on Friday, Prime Minister Brian Mulroney of Canada announced that his nation would direct a number of steps against the Kadafi regime, including a halt in assistance to Canadian companies doing business with the Libyan government; a ban on new exports of highly advanced oil drilling equipment, and bars against Libyan efforts to obtain through Canada technical assistance denied by the United States.

Earlier, the Italian government cut off arms exports to Libya and said that Italian workers could not take jobs given up by Americans now employed in Libya.

Rejection by Thatcher

But British Prime Minister Margaret Thatcher, generally one of Reagan’s most stalwart supporters in Europe, has rejected his efforts, saying the sanctions would fail because “the material will be supplied by other countries.”

Thatcher also said that retaliatory military operations would lead to “greater chaos,” and she opposed attacks “that are against international law.”

According to the White House, U.S. exports to Libya fell from $860 million in 1979 to $200 million in 1983, but grew to $300 million in 1984. Imports from Libya dropped by more than 99%, from $7 billion in 1980 to less than $9 million in 1983, but rose to $35 million last year.

Among the allies, West Germany’s trade with Libya runs to $2.8 billion a year, and Italy, with the largest stake, conducts about $4 billion in two-way trade.

Funds for Terrorists

In addition, Administration officials have said that “millions and millions” of dollars are being passed through Libyans’ private bank accounts in the United States and channeled to terrorists and that these accounts were not affected by Reagan’s order Wednesday freezing official Libyan accounts in this country.

Reagan has dispatched Deputy Secretary of State John C. Whitehead to Europe to present the Administration’s case for “isolating this outlaw among . . . the world’s nations.”

The President, asked by the European journalists about threats to American bases in Europe, referred to his earlier assertions that 126 terrorist missions were aborted last year and said “we take those threats seriously.”

Judged ‘by Deeds Alone’

Reagan also said, in response to a question about the conditions for improved relations with Libya, that Kadafi would be rated “by deeds alone.”

“He would have to reveal by action that he . . . is no longer backing these terrorist groups,” the President said.

In the interview, conducted in the Oval Office, the President employed little of the angry language that characterized his remarks earlier in the week, when he described Kadafi as a “barbarian” and “flaky,” and he rejected a suggestion by Sen. Howard M. Metzenbaum (D-Ohio) that the Libyan leader be assassinated.

He said: “I was quite surprised at that. You don’t join them at their level. Terrorism in response to terrorism is not the answer.”