89. Memorandum From the Executive Secretary of the Department of State (Eliot) to the President’s Assistant for International Economic Affairs (Flanigan)1

SUBJECT

  • Canada

I have seen Paul Volcker’s comments of March 29 on the CIEP study on Canada2 and have the following observations:

1. The difference between Treasury and the agencies that prepared the CIEP study are not necessarily irreconcilable. Thus:

  • —Treasury’s balance of payments forecast is more gloomy than that in the CIEP study. Surely this is an area where agreement should be possible.
  • —Treasury opposes the establishment of a sub-Cabinet standing group.3 But Treasury’s opposition is based at least in part on a misunderstanding. The proposed standing group is not intended to displace the balance of payments subcommittee (which has not met for almost two years) nor to deal with, or delay in any way the negotiation of, the short-term trade issues between the U.S. and Canada. The proposed standing group would provide a framework for advance consultations on emerging and sensitive matters, such as investment and industrial policy, that cannot be looked at solely in a balance of payments context.
  • —Treasury believes direct unilateral action may be necessary to deter Canada. Until Treasury spells out the kinds of unilateral action it has in mind, some quantification of the gains to our balance of payments [Page 220]if the action is successful and some estimate of the risks and costs involved (we have more than $30 billion of investment in Canada), other agencies cannot be expected to subscribe. We do not object in principle to unilateral action—we took such action, for example, on Canadian oil. We do believe, however, that a cost-benefit assessment should be made in each case. 2. If you agree, I shall reconvene the interagency group and instruct it to:
  • —try to reach agreed forecasts and do the quantification noted above;
  • —amend the CIEP study where Treasury views can be accommodated; and
  • —identify areas where differences remain.

I would appreciate your support in assuring Treasury participation.4

R. T. Curran 5
  1. Source: National Archives, RG 59, Central Files 1970-73, E 1 US. Confidential. Drafted by A. Reifman (E) on April 5 and cleared by Dallas L. Jones (S/PC) and George Springsteen (EUR). Attached is an April 7 memorandum from Assistant Secretary Willis C. Armstrong to Deputy Under Secretary Samuels noting that Volcker’s memorandum on the CIEP study on Canada revealed a large difference between Treasury and other agencies on Canada policy.
  2. Neither Volcker’s comments nor the CIEP study has been found. A March 20 6:15 p.m. note for Under Secretary Volcker indicates that the draft CIEP paper was scheduled to be discussed in a CIEP Operations Group meeting at 10:30 a.m. on March 21. (Washington National Records Center, Department of the Treasury, Files of Under Secretary Volcker: FRC 56 79 15, CIEP Meetings) No record of the meeting was found.
  3. This was a Department of State proposal that came out of the Department’s internal Policy Analysis and Resource Allocation (PARA) exercise that sought to match resources with policy issues. In a January 31 Policy Analysis Decision Memorandum (PADM 10) from Under Secretary Irwin to Assistant Secretary for European Affairs Hillenbrand regarding the PARA review of Canada, the second policy conclusion was that “the Department should propose a sub-Cabinet U.S.-Canadian standing group,” which would “deal with the wide variety of political-economic matters arising between the two countries and engage in a systematic dialogue on major long-term problems of common concern.” (Department of State, S/S Files: Lot 82 D 126, Box 5195, PADM File Book PADM 1 Thru 32)
  4. In an October 2 letter to Flanigan, Under Secretary of State Irwin referred to the failure to make progress in resolving the disagreement with Treasury. Irwin noted that after discussing the matter with Secretary Shultz, he believed Treasury would cooperate in preparing for negotiations. (National Archives, RG 59, Central Files 1970-73, E 1 US) In his November 15 Evening Report to the President, Secretary Rogers indicated that Under Secretary Irwin and Canadian Under Secretary of State for External Affairs Ritchie had discussed a wide range of issues including bilateral trade problems and preparations for multilateral trade and monetary negotiations. Both reportedly agreed consultations should precede any unilateral actions. (Ibid., S/S Files: Lot 74 D 164, President’s Evening Reading Items)
  5. Curran signed for Eliot above Eliot’s typed signature.