Foreign Relations of the United States, 1969–1976, Volume XXXI, Foreign Economic Policy, 1973–1976

104. Memorandum From the Counselor of the Department of State (Sonnenfeldt) to Secretary of State Kissinger ¹

Washington, October 8, 1975.

SUBJECT

• Economic Summit: Substance and Procedures

The preparatory group met in New York October 5–6 and, in the course of a quite solid and positive discussion, agreed to recommend (1) a basic approach for the summit, (2) the principal topics for discussion, and (3) certain procedural arrangements to ensure informality and flexibility of format.

At Tab A is the understanding reached on substantive approach and topics. You will note that the emphasis is not on reaching specific agreements but on a broad and far-ranging series of discussions on major politico-economic issues which will, hopefully, result in a sense, both among the participants and the public, that these leaders are transcending technicalities and are determined to come to grips with our common problems. This approach is also reflected in the proposed public announcement and additional background guidance that emerged from the New York meeting (Tab B).

Given the nature of the proposed summit, the New York meeting concluded that there probably should not be extensive multilateral efforts to produce papers and to negotiate out particular formulas; rather, the effort should be internal in each government to ensure that each head is fully informed about the issues, knows approximately where the important ones stand in ongoing international negotiations and fora, and can actively participate in the summit discussion. A possible exception would be if as the time for the summit approaches it were found desirable to try to issue some kind of a statement at the close, particularly on the points mentioned in paragraph 4 of Tab A, but possibly also on somewhat broader expressions of attitude. All agreed that there should not be a drafting session by heads of government since this will defeat the whole purpose of the meeting. This issue of a final statement can be left open for now.

Meanwhile, of course, normal intergovernmental contacts and negotiations on most of the issues in the proposed list continue actively. Indeed, Ed Yeo is about to leave on a previously scheduled trip to France and other European countries in an attempt to narrow positions on monetary questions (see below).² The key point is that while these ongoing contacts and negotiations should not be turned into direct preparations for the summit—no one, including specifically Giscard, wants the summit to be merely another ministerial meeting chaired by government heads—these negotiations will clearly be carried on with an eye cocked to the forthcoming summit. We must avoid letting officials drive issues to deliberate deadlock because they somehow expect that the chiefs will haggle them out. This would totally defeat the purpose of the summit and would almost certainly ensure a five or six to one lineup against the President on some issues, like trade and domestic economic policies.

Substantive Issues for Discussion

1. Economic Outlook in Each Country, Policy Outlook, Interrelationships Between Domestic Economies.

All agreed to the broad proposition that there are no more “national economies” but only an “international economy.” (Not applicable to the same degree to USSR and China.) With Schmidt leading off, there would then be a discussion of what is happening in each country and what each government is planning to do over the coming period. There would be a frank discussion of how one country’s economy is affected by what others do and what can be done to “coordinate” these policies. The Europeans are more eager for active forms of “coordination” because they are acutely conscious of the fact that what we do has greater impact on them than what they do has on us. The Germans, in this regard, always refer to interest rates but there is virtually no way in which Fed decisions in that area could be “coordinated in practice.” However, there certainly can be more explicit conversations about the money supply and what overall policy is in that regard. The British in the preparatory meeting talked of the need to discuss “how to avoid excessive inflation”—as a result of various expansionary actions—and then face a new cycle of restrictive actions in 1976. This is not unreasonable as a general topic and as the sort of issue on which to remain in continuing contact. The Frenchman provided the most sensible formula: “The discussion should not just be descriptive but it should concentrate on what we might do if either recovery is inadequate or if inflation runs too high in 1976. We cannot act in isolation and the summit must stress that we are all working together.” (It was agreed that Schmidt would make the first set of comments on this topic.)

2. International Economic Problems

a. Trade

This discussion was not too specific but the Europeans were emphatic in wanting to discuss US policies and the “acute problems” that confront the Europeans as a result. Specifically, they refer to US anti-dumping policies and actions in the area of countervailing duties. As you are aware, there is growing sentiment that the Trade Act has led to greater protectionism in the US than before. But there was also reference to possible UK import controls and need for assurances from Wilson on this score. Basically, Poehl summed up the European concern: “To maintain free trade.” The Japanese asked for a reasoned explanation of the US trade surplus. Shultz pointed out the reasons for this and the relationship to the oil price rise and to the problem of North-South relations. He said the purpose of the summit should be to give impetus to the MTN and to deal broadly with the problem of “access to supplies.” (It was agreed that Miki might lead off the discussion in this topic.)

b. Monetary Issues

This was the longest discussion, mostly between Shultz and Barre. Without recounting it in detail, the key point was an effort to get away from theology and from efforts to fight out the fundamental disagreement over fixed versus flexible exchange rates via the dispute on the IMF articles. Shultz stated flatly that he doubted we would accept even the “ultimate aim” language now under discussion. The discussion eventually led to the conclusion that theology should be set aside and that the emphasis should be on what can be done rather than on what ought to be said. Shultz pointed out that the talk of instability was misleading since the principal fluctuations occur as between the dollar and the snake. Shultz suggested that where fluctuations reflected realities in the economies involved they were in fact useful and massive intervention to remove them would merely revive the old problems. But where fluctuations were the result of more artificial factors—such as speculation and manipulation—a more coordinated form of intervention could indeed serve to smooth the turbulence. There was much talk of “managed floating” and “greater stability.” The Japanese said they would have to stay outside whatever arrangements are made but had a keen interest in them. In the end, Poehl suggested that a proper approach for the summit was to talk about the most stable feasible arrangement, some understanding on intervention practices and a solution of the dispute over the IMF articles.

Ed Yeo is on his way to France, Germany, Italy and Britain to explore the possibilities and we will know better after his trip whether the signs of greater pragmatism are real. This will require reciprocity from us. (It was agreed that Giscard would lead off on this topic.)

3. Relations with Developing Countries

There was little fresh discussion of this topic, but it was agreed that it was politically essential to have it known that this topic was discussed. It was agreed that there ought to be some positive outcome with respect to financial institutions designed to stabilize export earnings of developing countries. No one thought the summit could do very much on such issues as buffer stocks and commodity agreements. (It was agreed that Wilson would lead off.)

4. Energy

The discussion here was desultory. Shultz called for a “realistic discussion” and “for politicians to jack each other up.” But there was considerable sentiment that the group would want to hear from the President about US developments since they are central to what the industrialized consumers are going to be able to do. (It was agreed that President Ford would lead off.)

5. East-West Economic Relations

It was recognized that this subject will lend itself to a broader review of Soviet developments and East-West relations. In the economic area, there is interest in renewing the “gentleman’s agreement” on credits—a matter on which we are handicapped as long as the EXIM Bank is paralyzed by the Trade Act. Poehl also expressed concern about the mounting Soviet hard currency debt and how it is to be serviced. All were interested in better information exchange about Soviet economic developments and East-West economic relations. There will be much interest in our long-term grain agreement and in any arrangement on oil.³ (It was agreed that Moro, who is headed for Moscow on November 22, should lead off on this topic.)

Summit Procedures

At Tab C, you will find the recommendations of the New York group on procedures. Their central purpose is to provide for informality and flexibility and to keep the size of meetings to the absolute minimum—never more than three a side and occasional meetings just of heads, possibly with one aide. There was also agreement that there might be a single notetaker, provided by the host but it was recognized that he might not be used on all occasions. It is also assumed that there will be meetings in which only some of the heads will participate. Indeed, Schmidt will not arrive until several hours after the others on November 15, and Miki will have to leave well before the others on November 17. It was also agreed that there can be side meetings among any officials who accompany the heads but are not in the meetings with them.

US Preparations

Our main problem now is to work up briefing papers for the President on all the topics cited together with substantial talking points. In each case, there must be a comprehensive status report on where ongoing negotiations in normal fora stand and where we think the summit might give a useful push—but not get propelled into haggling or drafting. The items cited by the New York group in this respect are in paragraph 4 of Tab A. There may be others.

All our preparations should be geared to the central purpose of the summit: to open a frank dialogue that emphasizes actual and potential areas of agreement in a manner that signals determination to cope with common problems.

I suggest that preparation of the briefing papers be carried on through Bill Seidman’s EPB operation, with principal responsibility assigned as follows for the various topics:

1. Domestic Economies—CEA

2. Trade Problems—State

3. Monetary Problems—Treasury

4. Relations with Developing Countries—State/STR

5. Energy—State/FEA

6. East-West Economic Relations—State/Treasury

A separate strategy/scope paper should be done in the first instance by State but with ample input from Treasury, and the other EPB agencies.

Recommendation

That you, or Scowcroft, discuss this memorandum with Seidman and agree to get started on briefing materials as outlined above.⁴

1. Source: Library of Congress, Manuscript Division, Kissinger Papers, Box CL 419, Subject File, Economic Summit Meetings, 1975, Nov. (Rambouillet, France), Chronological File, 8 Oct.–1 Nov. 1975. Secret; Sensitive. Tabs A–C are attached but not printed.
2. Yeo and Cross were scheduled to visit Paris, Cologne, London, and Rome from October 10 to 16. (Telegram 242483 to Bonn, London, Paris, and Rome, October 10; National Archives, RG 59, Central Foreign Policy Files)
3. U.S. negotiators were close to concluding a long-term grain sales agreement with the Soviet Union and were engaged in talks concerning purchases of oil from the Soviet Union. The conclusion of the grain deal was announced on October 20. Beginning October 1, 1976, the United States would sell to the Soviet Union between 6 and 8 million tons of grain per year over the following 5 years. That same day, the United States and the Soviet Union also signed a letter of intent to reach an agreement on petroleum purchases. (The New York Times, October 21, 1975, p. 1)
4. There is no indication on the original that Kissinger either approved or disapproved the recommendation.