Shultz Rejects Soviets’ Daniloff Case Demand : He Refuses to Relax Order Expelling 25 From U.N. Mission; Moscow Hints at Retaliation

Secretary of State George P. Shultz on Thursday rejected a key Soviet demand for settling the case of U.S. journalist Nicholas Daniloff and ruled out ny relaxation of the expulsion order against 25 members of the Soviet Mission to the United Nations. Earlier, a Soviet official threatened that the Soviet Union would retaliate if the order were not rescinded.

The Soviet threat and Shultz’s reply came just before Shultz held an unscheduled meeting with Soviet Foreign Minister Eduard A. Shevardnadze at the U.S. Mission here. The two met, presumably with the Daniloff case as the only order of business, for an hour and 45 minutes.

Waved Off Questions

Shevardnadze drove off without making any statement, and Shultz waved off reporters’ questions when he left a few minutes later.

“The Daniloff issue was discussed, and the issue is still not resolved,” State Department spokesman Bernard Kalb told reporters after the meeting.

Shultz earlier told a news conference that the Soviet staff members named in the deportation order earlier this month must leave the country by the Oct. 1 deadline but that Moscow can replace them with other individuals, provided that the total staff remains below a ceiling set by the United States of 218 people.

The United States in March first ordered the Soviets to reduce their U.N. Mission, saying that the Soviets had twice as many staff members here as any other national delegation. Earlier this month, the State Department drew up a list of 25 officials who were ordered by name to leave. Reagan Administration officials have said, off the record, that all 25 are spies working for the KGB, the Soviet secret police agency.

“Being host to the U.N. does not mean we should be host to intelligence activities of other nations,” Shultz declared.

Before Shultz’s press conference, Soviet Foreign Ministry spokesman Gennady I. Gerasimov said six or seven of the 25 diplomats on the U.S. list have already left the country, and he implied that his government might agree to withdraw some of the others. But he said Moscow would not surrender the “principle” that the expulsion order is illegal under international law.

Gerasimov said that if the expulsion order is not rescinded, “then for many reasons, including prestige, we must think of some retaliatory measures.” He declined to say what they would be.

“We keep our options clear. . . . We want to maintain a little suspense,” Gerasimov said. “But we will take action.”

The continuing dispute over the Soviet Mission demonstrated that Shultz and Shevardnadze, who have met for nearly four hours this week, remain far apart in their search for a way to end the bitter controversy swirling around Soviet espionage charges against Daniloff, Moscow correspondent of U.S. News & World Report.

Nevertheless, Shultz said that both countries are negotiating in good faith.

“My sense is that Mr. Shevardnadze is also trying to get it done,” Shultz said at his news conference. “That doesn’t mean we are going to succeed in doing it, but I think there is a genuine effort on both sides.”

Gerasimov, at his press briefing, listed the Daniloff case, the U.S. expulsion order and the pending U.S. espionage charges against Gennady F. Zakharov, a Soviet citizen employed by the United Nations, as the three obstacles to a summit meeting between President Reagan and Soviet leader Mikhail S. Gorbachev.

Obstacles Cited

“In your eyes, Daniloff is the obstacle,” Gerasimov said. “In our eyes, this (expulsion) order is also an obstacle.”

Although Gerasimov said the three issues can be resolved separately, he made it clear that Moscow believes all of them must be settled before U.S.-Soviet relations can return to normal.

Trip to Canada

Shultz said he hopes the Daniloff case can be resolved before Shevardnadze leaves the United States next Tuesday for an official visit to Canada. But he refused to set a deadline.

However, Gerasimov said Shevardnadze’s scheduled departure is “kind of a deadline” for settling the Daniloff affair, and he referred to the other matters as “bumps on the road to the summit.”

Asked what would happen if the deadline is missed, Gerasimov said, “Both sides will be worse for it.”

Ever since Shevardnadze arrived in the United States last week, Soviet officials have maintained that the Daniloff crisis can be resolved quickly. Gerasimov reiterated that optimism Thursday while refusing to speculate on how the matter can be settled.

“The American side is silent,” he said. “The Soviet side must be silent, too. I hope that they are going to be through with this whole business pretty soon.”

Gerasimov made one subtle change in the now-familiar Soviet position, however. Previously, Soviet officials have said the solution to the problem is in U.S. hands, implying that Moscow has made a reasonable proposal and it is up to Washington to accept it. But this time, Gerasimov indicated that both sides have decisions to make.

“There are several options--all of them are good--and it is up to the American side and the Soviet Union to decide which is better for the benefit of both countries,” he said.

Daniloff was arrested by the KGB in Moscow on Aug. 30 after he accepted a package from a Soviet acquaintance. The Soviet secret police said the package contained secret military maps and photographs of Soviet military installations. Daniloff’s arrest followed by a week the arrest by the FBI in New York of Zakharov on espionage charges.

Confined to Moscow

Under an arrangement described by the Reagan Administration as a humanitarian gesture, both Daniloff and Zakharov were released to the custody of their respective ambassadors on Sept. 13. Daniloff is confined to the Moscow area, however, and faces charges that could carry the death penalty. Zakharov, accused of buying classified information from an FBI informant, could be sentenced to life in prison; he is under court order to remain in the New York area.

The Reagan Administration has rebuffed Soviet proposals for a trade of Daniloff for Zakharov because it maintains that Zakharov is a spy and Daniloff is a hostage.

It is understood that the United States has suggested a complex package that ultimately would lead to freedom for both Daniloff and Zakharov.

Freeing of Shcharansky

Under this proposal, Daniloff would be freed first, without any explicit reference to a swap, and then Zakharov would be released in exchange for unidentified Soviet dissidents. This sort of exchange would be similar to earlier spy-for-dissident trades, including the one that won the freedom of Jewish activist Anatoly Shcharansky.

Such a deal may yet be struck, but the details could take some time to work out.

In Washington, Atty. Gen. Edwin Meese III told a press conference Thursday, “As to Zakharov, I think our plan is to go ahead and bring Zakharov to trial, and that’s what’s going to be done.”

Asked if he was ruling out any sort of solution that would preclude a trial, Meese said: “The courthouse may burn. Lightning bolts may flash. I’ll stick to what I’ve said.”

For his part, Gerasimov said: “We can proceed with a trial of Daniloff. We think we have strong evidence against him so he can be tried. Simply, we do not want to aggravate our relations even more.”

Meanwhile, in Hamburg, West Germany, the Bild newspaper reported Thursday that Daniloff will probably be released by early December on Berlin’s Glienicke Bridge. The unsourced report said that Daniloff, three human rights activists, a physician jailed in East Germany and several West German agents jailed in the Soviet Bloc would be traded for Zakharov and two East Bloc agents.

Asked about the Bild report, Gerasimov said, “Why would Daniloff go to Berlin? If we decide to let him go, he can take the first plane out. Pan Am now goes to Moscow.”